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Analysis
Surprise – what surprise? Axel Weber’s departure was inevitable

Surprise – what surprise? Axel Weber’s departure was inevitable

Merkel has made a mess of the ECB succession – but don’t blame the Bundesbank for that

by David Marsh

Mon 14 Feb 2011

Axel Weber’s departure and his self-exclusion from the ECB presidential selection process has been labelled a surprise. It should not be one. Weber is an academic who was not the previous German government’s first choice when the Bundesbank presidency became vacant in 2004. He can hardly be criticised for seeking to resume life outside central banking. It was not a secret that, as an arch-defender of Bundesbank-style monetary orthodoxy, he was displeased with the ECB’s growing politicisation, and had no wish to take part in the horse-trading that form part of an ECB chief’s job.

Weber’s opinion is legitimate, consistent and frequently articulated. The German government was well-informed about it. Thus the much greater surprise is why Chancellor Angela Merkel stuck to her guns on placing a German at the helm of the ECB. It was clear all along that this would not be in Germany’s best interests.

As I pointed out publicly six months ago (e.g. in OMFIF July Monthly Bulletin and in Financial Times on 2 August 2010 ‘Weber would be a bad choice as EU’s top banker’), putting a German in charge would inflame Europe’s north-south divisions and hamper Germany’s chances of enforcing stability-minded policies.

The likelihood of debt rescheduling by some of the euro’s problem members is rising. So are the complexities of Europe’s two-speed economics: austerity in the south, export-led recovery in the north. With inflation rising in Germany, the ECB will have to tighten credit in coming months at an unpropitious time for the southern states.

One lesson from the Bundesbank’s history is that new presidents often have to take highly unpalatable decisions to raise interest rates that get them into political hot water. The same prospect faces whoever takes over at the ECB in the autumn when Jean-Claude Trichet retires.

It is still not entirely certain that a non-German will be the next ECB boss. Jürgen Stark, the ex-Bundesbank deputy president who is at present the ECB’s chief economist, could take over, but his eight year non-renewable term on the ECB board runs only to 2014, so he would be no more than an interim president. Klaus Regling, the present head of the EFSF bail-out fund, could get the job – but he would confirm the shift in the ECB’s mandate to become a political institution in charge of rescuing errant euro states.

Whatever happens, it will be complicated.

The German government has certainly made a mess of the ECB succession, but Weber departs with an untarnished reputation for straight thinking and straight talking. He leaves the future direction of the euro zone cloudier than ever. But that is not his fault – and soon will no longer be his problem.

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