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Analysis

Overcoming ECB politicisation

Sweden's Ingves may be best Draghi successor

by John Nugée in London

Mon 13 Nov 2017

At the US Federal Reserve, European Central Bank and Bank of England, the long march back to policy normality is beginning to gather pace. Furthermore, we will see shifts in leadership of all three institutions in the next two years, as current governors depart at the end of their terms.

Rotation of office holders is almost always beneficial; the long stint that Alan Greenspan put in as Fed chairman (1987-2006) is not remembered as an unalloyed blessing. Spending too much time in the seat of power can unduly convince even the most rational person of their infallibility.

The successors to Janet Yellen, Mario Draghi and Mark Carney will not be encumbered with remarks made to justify extreme monetary actions since the 2008 financial crisis. They will have a freer hand in unwinding past policies.

Nowhere will this be more visible than at the ECB, where Draghi's term ends in just under two years. One of the frontrunners for his position is Jens Weidmann, Bundesbank president. He was one of Draghi's fiercest critics when the ECB introduced its bond purchase schemes. Weidmann, many might think, is well placed to manage the exit from the strategy. He would certainly not bring any sentimental attachment to current policy.

Germany has watched as a Dutchman, a Frenchman and an Italian have led the euro area's central institution. German observers have not always enjoyed the experience of a foreign official presiding over their monetary policy. The cries of 'equal chances for all' and, more pointedly, 'our turn now' resonate strongly with both the German political class and the electorate, and although German public opinion is not overtly hostile towards the ECB, a fourth non-German president would face some antagonism.

Weidmann is still relatively young (49) among policy-makers. He seems likely to be reappointed Bundesbank president for a further eight years when his term expires at end-April 2019 – making him the first Bundesbank president since Karl Otto Pöhl 30 years earlier to serve a full eight-year term. This might give him an excellent platform as Draghi's possible successor.

However, Weidmann may want to be careful. As well as proving an extremely competent technical central bank chief, Draghi has been an excellent political governor in what is probably, along with the chairmanship of the Fed, the most politically challenging of all governorships. The capacity for Weidmann to get things wrong, damaging not only his career but also Germany's sometimes tense relationship with its euro partners, cannot be overlooked.

There are several other individuals whom the ECB may consider. Some forethought is needed. Vítor Constâncio, ECB vice-president, who has been a sound deputy to Draghi, steps down at the end of May 2018. European Union leaders will consider the nationality of whoever replaces Constâncio as part of a bigger balancing act prefiguring the choice of president in 2019.

Among national central bank governors, François Villeroy de Galhau of France, Klaas Knot of the Netherlands, and Philip Lane of Ireland may all be plausible candidates for Draghi's job. Another person worth considering is Sweden's Stefan Ingves. The hugely respected governor of Sveriges Riksbank, Sweden's central bank (and the oldest in the world), in office since 2006, knows all about quantitative easing and negative interest rates. He would bring great experience, prestige and much-needed political neutrality to the ECB presidency at a time when the bank needs steady leadership.

Some might complain Sweden is not a member of the euro area (though Ingves was born in Finland – a member country). But, the ECB presidency is a EU post, open to citizens of any member state, and to help the ECB overcome looming politicisation and defuse national rivalries, Ingves' nationality might be a great advantage.

Despite the fact that Ingves has just been invited to stay on at the Riksbank for another five-year term, the Swedish authorities would probably accept his transition to Frankfurt with good grace and perhaps even some pride.

As the ECB begins to plan for life after Draghi, it could do a lot worse than consider the man from Stockholm.

John Nugée is a Director of OMFIF and a former Chief Manager of Reserves at the Bank of England.

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