Weber's Withdrawal Throws Open ECB Race as European Debt Crisis Persists
The campaign for the top job at the European Central Bank was thrown open as the sudden and unexplained withdrawal of German front-runner Axel Weber cleared the way for a slew of candidates to replace Jean-Claude Trichet.
Central bankers Mario Draghi of Italy, Luxembourg’s Yves Mersch and Erkki Liikanen of Finland saw their chances of winning Europe’s top economic post rise as did Germany’s Klaus Regling, who runs the region’s bailout fund. Trichet’s non- renewable eight-year term expires in October.
“The top candidate is now out of the game,” said Marco Valli, chief euro-area economist at UniCredit Global Research in Milan. “We can now focus on alternative candidates and the political push behind appointing the next ECB president.”
The fate of Bundesbank President Weber whipsawed the euro, forcing the debate over the world’s second-most important monetary post after U.S. Federal Reserve chairman into the spotlight just as European leaders grapple with how to put an end to the sovereign debt crisis that has shaken the single currency’s foundations.
Weber, who ducked calls for a public declaration yesterday, today reversed a plan to comment on his intentions. Having said he would issue a statement before a speech in Vienna, he then said he would not do so having spoken with German Chancellor Angela Merkel. The two intend to talk again and ``will coordinate in taking all necessary decisions,'' Weber said.
Unsourced media reports yesterday of a pullout by Weber shattered German efforts to steer the ECB nomination behind the scenes, prompting a telephone confrontation with Merkel and subsequent confirmation by Weber associates.
Weber, 53, plans to quit the Bundesbank in a decision that would rule him out of the ECB running, said a person who spoke with him yesterday. He will leave about a year before his term ends in April 2012.
Until his exit, leaders would have had to balance Weber’s two-decade academic record and citizenship of Europe’s largest economy with his outspokenness and opposition to the ECB’s bond- buying program, a key part of Europe’s crisis-fighting strategy.
Weber summoned the Bundesbank board to a hastily scheduled meeting late on Feb. 8 to announce plans to quit after one term, the Financial Times Deutschland reported today, without citing sources. Merkel, learning the news from the media, pressured him to delay a public statement until she taps a successor, the newspaper said.
As Merkel weighed whether to push Weber to reconsider or float another German candidate, the ECB succession looked set to come up March 11 at a special 17-nation euro-area summit on the debt crisis that European Union President Herman Van Rompuy called yesterday.
“We have time now to find a replacement at the Bundesbank because as I understand it Mr. Weber is leaving later this year, Michael Meister, the senior finance and economy spokesman for Merkel’s Christian Democratic bloc, said in an interview. ‘‘As for a successor to Mr. Trichet: no, it doesn’t have to be a German. It has to be a good person.”
Whoever takes over from Trichet, Merkel has to persuade a skeptical electorate that bailing out wayward partners in the currency union and saving the euro is worth the cost, of which Germany bears the biggest share. Greater financial support for indebted euro-area countries was opposed by 64 percent of German respondents in a Jan. 28 FG Wahlen poll.
“What a blow. For the Chancellor. For the Euro,” says the lead editorial in Bild, Germany’s biggest-selling newspaper. “And all this at a time when Germans are losing trust in the euro, and when they feel like its mere paymasters. Against this gut feeling a German at the head of the ECB would have been very important.”
One piece in the ECB puzzle fell into place yesterday when Belgium’s Peter Praet emerged as the favorite to win an Executive Board seat that opens up in May. Praet, 62, a Belgian central bank aide, is set to be recommended Feb. 14 for the post being vacated by Austria’s Gertrude Tumpel-Gugerell, seven European officials familiar with the process said.
Weber enters the annals of EU history littered with front- runners who ultimately failed to get the top job, from flopped bids to run the European Commission by Belgium’s Jean-Luc Dehaene in 1994 and Guy Verhofstadt in 2004 to Tony Blair’s campaign to be the first EU president in 2009.
Married with two children of high school and university age, Weber took the helm of the Bundesbank in 2004 and spoke just this week about the workload of being a top central banker.
“Working days become longer, and weekends are no longer weekends,” Weber said in Tallinn on Feb. 7. “I never dreamed that I would be a policy maker myself.”
Weber’s retreat was a reminder that politics, not central banking ideology, will determine who succeeds Trichet. No deadline is set for a decision, the first time Europe has named a chief central banker since the ECB’s first two presidents were picked at a dramatic summit in May 1998, eight months before the euro’s birth.
At the time, Wim Duisenberg of the Netherlands, endorsed by Germany, faced a veto threat from France. A political deal was hatched to give him the job, as long as he stepped down early to make way for Trichet, who is set to serve the full eight-year term. Citigroup Inc. economist Juergen Michels said yesterday that this time leaders may wait until mid-October to make their choice.
Bank of Italy Governor Draghi, 63, is the only declared candidate for the top post, though the backing of Prime Minister Silvio Berlusconi may count against him in policy circles -- Italy’s leader faces a formal request to stand trial for alleged abuse of power and paying a minor for sex.
As chairman of the Financial Stability Board, Draghi has been at the core of international efforts to rewrite the rules of global finance following the credit crisis, experience that may prove valuable given Trichet now chairs Europe’s new risk watchdog.
The holder of an economics doctorate from the Massachusetts Institute of Technology, Draghi spent the early part of his career as an official in the Italian Treasury. He worked on Group of Seven meetings and led the privatization of $105 billion worth of Italian companies, including Enel Spa, Telecom Italia SpA and Banca Nazionale del Lavoro SpA.
A potential handicap is Draghi’s three-year stint as a vice chairman of Goldman Sachs Group Inc., which may open him up to sniping from leaders who blame investment banks for the credit crisis. His selection would leave two southern Europeans atop the ECB, with Portugal’s Vitor Constancio as vice president. A third, Jose Barroso of Portugal, runs the European Commission.
Luxembourg Central Bank Governor Mersch, 61, ranks as a German-style inflation hawk, with an ability to speak to Germans and French in their own language and to the financial markets in theirs, English. A lawyer by training who helped negotiate the 1991 Maastricht Treaty that created the euro, Mersch has sat on the ECB’s council since its inception.
The appointment of Mersch, who decorates his bank with art work from around Europe, might force Luxembourg Prime Minister Jean-Claude Juncker, Europe’s longest-serving government head, to give up his role as the chairman of the monthly meetings of euro-area finance ministers.
Liikanen, 60, has run Finland’s central bank since 2004. After negotiating Finland’s 1995 accession to the EU, he served as European budget and business-promotion commissioner. He made his mark in Brussels prodding governments to open their telecommunication markets to competition and for ensuring new controls on chemicals didn’t put companies such as BASF AG at a disadvantage to rivals.
As Finland’s finance minister in the late 1980s, he oversaw the boom of the Nordic economy before growth slumped. The youngest Finn ever elected to parliament at the age of 21, Liikanen has first-hand knowledge of business as a former member of the supervisory board of stainless-steel maker Outokumpu Oyj. A potential obstacle is that fellow countryman Olli Rehn is now EU commissioner for economic and monetary affairs.
A longshot contender -- and the youngest -- could be Athanasios Orphanides, 48, who heads Cyprus’s central bank and counts 17 years as a Federal Reserve economist on his resume. The first ECB official to argue in favor of zero interest rates amid the recession, he was born in communist-ruled Czechoslovakia before studying at MIT.
The ECB’s first two chiefs were drawn from the central banking community, lessening the chances of a possible German compromise candidate, Regling, now in charge of the 440 billion- euro ($604 billion) rescue fund for debt-hit states.
While lacking a central banking pedigree, Regling, 60, served in the German Finance Ministry and ran the European Commission’s economics department before taking on his role as debt-crisis firefighter. “I have a great job,” Regling told reporters in Berlin yesterday.
Julian Callow, chief European economist at Barclays Capital in London, said whoever wins the job may not much change the tone of ECB policy making, which is set by the consensus of a 23-member Governing Council.
“We would not envisage a significant change in its strategy or reaction function,” said Callow. “The lesson of the ECB’s history so far is that while the personnel may change, the institution has stuck firmly to its clearly defined mandate ‘to maintain price stability.’”
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