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Analysis
Weidmann ECB countdown

Weidmann ECB countdown

Aftermath of European vote

by David Marsh in London

Fri 24 May 2019

The countdown is under way towards nomination of a new president of the European Central Bank to replace Mario Draghi on 1 November. The probability is rising that Jens Weidmann, Bundesbank president since 2011, will get the job, even though it would be combined with many problems and risks, and a last-minute attempt to block him cannot be ruled out.

Signals in Weidmann's favour may come as early as next week. Decision-making on the ECB job forms part of continent-wide political shifts – including the nomination of a new European Commission chief and expected departure of British Prime Minister Theresa May – after the European Parliament election results.

Voting on 23-26 May is likely to demonstrate pan-European fragmentation and a move away from centrist parties that will complicate both Britain's European Union departure and further steps toward European integration.

Weidmann switching to the ECB would be controversial. The Bundesbank chief has pointedly, but with decreasing vehemence, opposed many Draghi-driven ECB decisions since 2011 to support the European economy and prop up member states.

He has in recent years taken a more conciliatory stance on many monetary issues, both within and outside meetings of the 25-member governing council. If he won the ECB job, one of his early priorities would be to build on Draghi's effort to open up the bank's communications, including with ordinary voters around the 19 states within monetary union.

When the ECB was set up in 1998, there was a strong yet never formalised consensus that, in return for the rest of Europe modelling the bank on the Bundesbank and siting it Frankfurt, a German would not take the presidency.

That understanding was tested in 2011 when Chancellor Angela Merkel offered the post to Axel Weber, Weidmann's predecessor – but made clear that he would struggle to make the job a success. Weber rejected the overture, quit the Bundesbank and joined UBS, the Swiss bank, fulfilling a long-held ambition to work in the private sector.

Weidmann, too, would face strong pressures and risks as head of the ECB.

Up until a few months ago, he was widely viewed as an improbable candidate. But the odds have shifted, in the light of changing political currents between Germany and France over the desirability of Manfred Weber, a conservative German member of the European Parliament, to take over from Jean-Claude Juncker as European Commission president.

Merkel chose Weber to spearhead Germany's bid for the Commission presidency, but the likelihood that he will get support has fallen as a result of fragmentation in the European Parliament being constituted after 1 July. This opens the possibility of a French representative at the helm of the Commission, corresponding to a long-held aim of President Emmanuel Macron.

Weidmann as ECB president would have to adjust his own – and the Bundesbank's – traditionally hawkish policies. This would recognise the reality that a built-in majority of the ECB's governing council has been and will remain in favour of a highly accommodative monetary policy, probably for several years. He would probably disappoint many ordinary Germans who would expect a Bundesbank chief to accelerate monetary normalisation by switching away from negative interest rates and reducing the ECB's much increased balance sheet. He would be expected to clarify the ECB's stance on possible future quantitative easing and use of the outright monetary transactions mechanism (decided in 2012 but never used) for channelling central bank funding under strict conditions to debtor states like Italy.

David Marsh is Chairman of OMFIF.

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