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The battle for Frankfurt

The battle for Frankfurt

27-03-2018 | Billet

Spain is back. It has not had a seat on the ECB's six-person executive board since 2012 despite being the Eurozone's fourth-largest economy. Now Mr. De Guindos has been nominated by the Eurogroup. He has been Spain's economy minister since 2011 and can be considered the architect of the impressive supply side reform driving Spain’s remarkable recovery.

  • Léon  Cornelissen
    Léon
    Cornelissen
    Chief Economist

Before that, Mr. De Guindos headed the Iberian unit of Lehman Brothers before it collapsed. With Spain’s return, the informal understanding that the four largest economies of the Eurozone are always represented on the six-person board has been restored. There are more vacancies to be filled. Eastern Europe will claim a post for the first time.

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Going north

De Guindos’ nomination opens the way for a northern European to be appointed successor to ECB-president Mario Draghi in order to keep a regional power balance in the board’s composition. Draghi will retire at the end of October 2019. The frontrunner is generally thought to be the current head of the German central bank, Jens Weidmann. This sounds reasonable as the Eurozone’s largest economy has never had an ECB president, unlike the second- (France: Jean-Claude Trichet) and third-largest (Italy: Draghi).

OK, Frankfurt is home to the Seat of the ECB. Though the German-speaking Francois Villeroy de Galhau (from Alsace) of the Bank of France is also in the running, I guess that a second French turn at the helm would generally be considered too much. Weary of giving too much power to Germany, there is some speculation that European leaders will opt for a representative of a smaller Northern European country (Finland, the Netherlands?). Given that the first ECB president was a Dutchman (Duisenberg) I would not, in any case, put my money on Klaas Knot.

However, Weidmann’s appointment would not be without problems. It would mean that Sabine Lautenschläger, the only female board member, whose term ends in January 2022, would have to resign early, as having two Germans on the board would be a bit much. The ECB executive could therefore easily end up with an increasingly embarrassing all-male team. A second problem is that Weidmann has consistently opposed the more radical measures taken by the ECB in the aftermath of the crisis.

Inevitable choice

His past hawkishness could lead to resistance to his nomination as he could be considered a threat to the euro’s long-term survival. On the other hand, despite his minority views, he hasn’t resigned, unlike the former Chief Economist Jürgen Stark. So he is probably a pragmatist. Currently 49, he is also young.

But perhaps we shouldn’t exaggerate the importance of the chair in terms of practical policy, as the ECB is the only important European institution that takes decisions by simple majority. It isn’t only the chair’s view that is decisive. Moreover, the strong upswing in the Eurozone economy will put a gradual end to the extraordinary monetary measures and usher in a return to normality. It could also be argued that the overreliance on monetary policy has been unhealthy and has given politicians too much room to avoid making tough decisions.

All in all, Weidmann seems like an easy, perhaps even inevitable, choice.

This column was first published in Robeco Quarterly March 2018

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