He voted against the decisions that saved the euro. He publicly criticized them while financial markets were in turmoil. He offered no alternatives. And he still believes it’s not the European Central Bank’s job to preserve the eurozone — only to keep prices stable.
Yet some people in Berlin and Frankfurt want to anoint Jens Weidmann, head of the Bundesbank and standard-bearer of German monetary orthodoxy, as successor to Mario Draghi when the Italian ECB president steps down this fall.
The race for the most powerful and sensitive job in the European economy ought to be run strictly on its own merits. But like a rare lunar eclipse, the Bank’s eight-year appointment cycle coincides with the EU’s five-year political and legislative cycle for the first time since it was set up in 1998.
So the ECB nomination has become part of a wider package deal among EU leaders involving the top jobs in the European Commission, European Council and European Parliament, as well as the bloc’s next foreign policy chief.
After leaders had a first informal discussion of this mercato last week, European Council President Donald Tusk said he would consult with the Parliament and national governments to try to “provide clarity on all these posts already in June” at the next EU summit. He also spoke of “the need to reflect the diversity of the Union when it comes to geography, the size of countries, gender as well as political affiliation.”
Tusk’s statement appeared to subordinate the choice of ECB chief to the outcome of the bigger political power struggle over the Commission presidency, and to the requirements of East-West, North-South, male-female and left-right-center balance. Put simply, if German Chancellor Angela Merkel fails to shoehorn Bavarian conservative Manfred Weber into the top Commission job, due to opposition led by French President Emmanuel Macron, Germany would have to be compensated with another major post.
That’s no way to choose a central bank chief who, in the absence of a central EU government, is the eurozone’s last line of defense against a financial meltdown. It could cost Europe dearly when the next crisis hits, whether due to a global trade war unleashed by U.S. President Donald Trump, a chaotic no-deal Brexit, a fiscal explosion in Italy or some less predictable event.
The ECB needs a leader willing to think outside the box and take unconventional action if required in a storm. Weidmann does not have the right mindset for the job. Despite his intellect, multilingual communication skills, government experience and charm, there is no reason in his track record to believe the conservative German would be willing to do (or even say) “whatever it takes” to preserve the euro, as Draghi did in a bold act of statesmanship at the peak of the eurozone crisis in 2012.
Weidmann’s boosters argue that he would be best placed to sell ECB policy to a skeptical German public. But he is too blinkered by dogma about the limits of the central bank’s mandate. He has argued that persistently undershooting the ECB’s inflation target of close to but below 2 percent is not a problem and should not delay a tightening of ultra-loose monetary policy. And he has voiced sympathy with the discontent of German savers who are no longer receiving real interest on their risk-free savings deposits due to low ECB rates.
Draghi’s vow to do whatever it takes to preserve the euro, backed by a policy of being ready to buy short-maturity bonds of struggling governments that accepted and implemented an adjustment program, marked the turning point in the eurozone crisis.
Weidmann not only opposed this Outright Monetary Transactions policy, he testified against it in a lawsuit brought by ultra-conservative professors in the German Constitutional Court, arguing that the ECB had no place acting as a lender of last resort to eurozone governments with the risk of losses for German taxpayers. His statement gave ammunition to the ECB’s most virulent German critics, who accuse Draghi of a creeping expropriation of German pensioners to keep Italy afloat with cheap money.
“If Weidmann were to be selected, financial markets might pretty quickly want to test the euro area again,” said Guntram Wolf, director of the Bruegel economic think tank in Brussels. “This is all the more likely as we see a very serious political rift between the EU as a whole and Italian politics and the Italian economy.”
Asked last year by the Frankfurter Allgemeine Zeitung whether preserving the euro should be a goal of monetary policy, Weidmann said: “The ECB has only one goal, namely to secure price stability.” It is up to politicians, he added, to ensure that member states pursued economic policies that make the currency area sustainable over the long term.
Other central bankers, like Draghi, have interpreted the ECB’s mandate much more broadly. While the EU treaty makes price stability the primary objective, it also stipulates that the bank “shall support the general economic policies in the Union” and promote “the smooth operation of payments systems.”
With interest rates at zero, inflation remaining stubbornly low and the stock of government bonds eligible for purchase nearing exhaustion, the bank has fewer tools left to combat a new downturn if one should occur. It could buy bank bonds or stocks, as the Bank of Japan has done. It could also find ways to directly finance public investment in infrastructure and the transition to green energy in the eurozone, but such controversial steps run counter to conservative German orthodoxy.
There are several well-qualified candidates to lead the ECB through the next eight years.
Bank of France Governor Francois Villeroy de Galhau, 60, shares Draghi’s more expansive view of the ECB’s role and argued recently that monetary policy should remain accommodating, just as hawks are itching to “normalize” it. The German-speaking Frenchman, with a distinguished record of private sector and government service, is the first choice of those seeking continuity with the Draghi years. Especially since fellow Frenchman Benoit Coeure, 50, appears to be barred from the job since he is currently serving an eight-year non-renewable term on the ECB’s executive board.
If both Frenchmen were blocked by German opposition, there are two Finns waiting in the wings. Erkki Liikanen was a key asset to Draghi on the ECB’s policymaking governing council as a northern swing voter who supported decisive crisis action. But he will be 69 in October, perhaps late in life to start an eight-year term. One possibility for which there is a precedent is that Liikanen might commit to serving less than a full term and make way for a younger successor.
Olli Rehn, 57, who was the European commissioner for economic and monetary affairs at the height of the eurozone crisis and is now governor of the Bank of Finland, has made some thoughtful speeches calling for a Fed-style review of ECB monetary policy in the light of persistent undershooting of the inflation target. However, neither Finn is a gifted communicator.
There will also be calls to look for women to balance the overwhelming male ECB hierarchy. There is just one woman on the 25-member Governing Council.
Bundesbank Deputy Governor Claudia Buch, 53, and Bank of France Deputy Governor Sylvie Goulard, 54, would appear to lack monetary policy experience for the top job. But they and distinguished female economists such as OECD chief economist Laurence Boone, 50, London Business School professors Helene Rey, 49, and Lucrezia Reichlin, 64, are all well qualified for executive board positions.
There is one other contender who would appear amply qualified if the priority is to give Germany its turn in the ECB hot seat. Klaus Regling set up the eurozone’s bailout fund, the European Stability Mechanism, from scratch after a career including the IMF, the German finance ministry and the European Commission. Regling, 69 later this year, might be German enough to reassure the burghers of Frankfurt but mentally flexible enough to do “whatever it takes” if there is another crisis.
Whatever the question is for the next ECB president, the answer is not Weidmann.