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Would He Have Done All It Takes?

12 September 2017 by Gary Kirk

In a little over two years from now the ECB will be welcoming their new president, as Mario Draghi’s 8-year tenure comes to an end on 31 October 2019. The short-list of candidates is not expected to be submitted until late next year, with the successor being announced in June 2019. However, the posturing has already begun with Germany starting a subtle campaign in favour of Jens Weidmann, the current Bundesbank President and close ally of Angela Merkel.

Typically the selection of a central bank head of office is a mundane affair, however this time we think it is going to be anything but, as Weidmann taking over from Draghi would signify a dramatic change of guard at the helm of the ECB. It is very well documented that Weidmann is a committed hawk and outspoken against the monetary policies adopted by the ECB that were used to combat the credit crisis and, some would say, safeguard the euro itself.

Germany would argue that by being the most significant component in the eurozone, with the highest population and largest economy, its turn has come to have one of its nationals at the top of the ECB given that the other key member states have already held the role starting with the Netherlands (Wim Duisenberg), then France (Jean-Claude Trichet) and currently Italy (Mario Draghi).

The problem for many within the eurozone, and particularly within the ECB itself, is that Weidmann clearly disagreed on the actions taken by the ECB’s Governing Council, claiming that monetary stimulus was not the answer without putting forward any credible alternative, except for more punitive austerity on the more indebted peripheral countries.

Within Germany he is viewed as a defender of prudence and stability, whereas in some parts of the eurozone he is viewed as putting Germany ahead of unified Europe and someone not prepared to be radical when faced with a genuine crisis, like Draghi was. One wonders whether Mr Weidmann would have been as assertive and “done whatever it takes” back in 2012, and what might have happened to the euro if a more passive response was taken by the ECB at that time?

It is too early to begin to predict the new ECB regime, but looking back I think the euro can be thankful that there was a radical head of the ECB when it was facing the crisis rather than a traditional pragmatist. Looking forward a prudent conservative may be the right kind of candidate but it is going to split opinion, and hence watching this competition build from the sidelines is going to be a fascinating political spectacle. If Weidmann does get the job it could signal the Germans being more accommodating to the principal of one unified treasury and one step closer to political union, on the other hand if a more radical euro-socialist wins the top role it could see Germany retract. The outcome is critical for the eurozone and like us, I’m sure all the political journalists are licking their lips with excitement at the thought of a long protracted competition with plenty of political rhetoric to keep us entertained in the run up to the vote.

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