ECB Race May Leave Liikanen as a Compromise Choice for President

A jazz-loving Finn with a reputation for consensus building may emerge as a compromise candidate to lead the European Central Bank during its first cycle of interest-rate increases for more than three years.

Erkki Liikanen’s chances for the top ECB job have increased after front-runner Axel Weber resigned from the Bundesbank last week, according to economists Julian Callow from Barclays Capital, Jens Sondergaard at Nomura International Plc and Tiina Helenius, Finland chief economist at Svenska Handelsbanken AB.

Lawmakers who know Liikanen and economists say the Finnish central bank governor’s strongest attributes are in the diplomacy and networking he honed during 14 years in the corridors of the European Commission in Brussels. He may need those skills to steer the debate among 23 policy makers if he replaces Jean-Claude Trichet as ECB President in October in the same quarter that economists predict an interest-rate increase.

“Liikanen is a consensus-builder,” Helenius at Handelsbanken in Helsinki said in a telephone interview yesterday. “He’s not one to rock the boat.”

The surprise departure last week of Germany’s Weber, one of Europe’s most vocal inflation fighters, threw wide open the succession race to replace Trichet. Potential rivals for Liikanen, 60, include central bankers Mario Draghi from Italy and Luxembourg’s Yves Mersch. Germany’s Klaus Regling, head of the European Union’s bailout fund, may also be considered, even if he lacks monetary policy experience.

Rate Debate

If Liikanen wins the job, one of his first tasks may be to decide whether to raise interest rates to counter inflation in the euro area. Consumer prices are rising at the fastest annual pace in more than two years.

“Liikanen is a convincing negotiator, who takes initiative rather than just listening,” said Pertti Salolainen, a member of the Finnish parliament who worked with Liikanen to bring Finland into the European Union in 1995.

Nomura’s Sondergaard said a key requirement for the ECB presidency is having diplomatic skills, “in particular in reconciling the interests of the core and the periphery.” Thus “a candidate from a smaller country in the euro area is becoming more likely,” he said. The Bank of Finland declined to comment on Liikanen’s possible candidacy.

Liikanen, the third Finn to serve on the ECB council, is not a career central banker, having joined the Bank of Finland in 2004. As finance minister, he oversaw the boom of the Nordic economy in the late 1980s, leaving for Brussels as growth slumped. He then held two posts in the European Commission, in charge of the EU budget and then information technology.

‘Really Great’

“He’s actually a really great candidate,” Risto Siilasmaa, board member at Nokia Oyj, the world’s biggest maker of mobile phones, told Bloomberg News on Feb. 9. “I never heard anyone criticize the work he did for the commission, which is quite something.”

Even so, the fact that fellow Finn Olli Rehn is the EU Economic and Monetary Affairs Commissioner will make Liikanen’s appointment next to impossible, said Werner Langen, a German Christian Democratic member of the European Parliament.

“Liikanen would be eminently suitable,” Langen said. “But with Olli Rehn as commissioner, it’s unthinkable.”

Barclays’s Callow disagrees, saying officials’ desperation to give the job to the right person may supersede any qualms on nationality. While he doesn’t see Liikanen as the favorite, he said Liikanen is cast from a similar mold to Trichet.

No Blue Note

“He’s on par with Trichet, robust but pragmatic,” said Callow. “I have never heard him hit a blue note on monetary policy.”

While Liikanen applied for a second term as Finnish central bank governor yesterday, the country’s finance minister, Jyrki Katainen, told reporters today European governments haven’t started debating Trichet’s successor, saying the issue is “not that acute.”

Until last week’s news on Weber, “it’s been between Germany and Italy, Weber and Draghi,” Katainen said when asked if he will put Liikanen’s name forward. “We’ll have to see how the situation develops.”

Liikanen is the youngest Finn ever elected to parliament, beginning his career in the legislature in 1972 at the age of 21 and spending 18 years there. He studied political science with an emphasis on economics and earned a masters degree at the University of Helsinki in 1975.

Jazz Fan

An avid jazz fan, Liikanen held regular jazz brunches during his Brussels years and used to be on the supervisory committee of the annual Pori Jazz festival held on the West coast of Finland. In 2007 he persuaded Trichet to hold a speech on the sidelines of the festival.

Liikanen heard a recording of Charlie Parker and Miles Davis playing ‘A Night in Tunisia’ when he was an exchange student in 1968 at the Yeshivah of Flatbush high school in Brooklyn, New York. He describes that moment as “a lightning bolt.”

Liikanen also runs marathons and enjoys cross-country running and skiing, including competing against colleagues. Weber participated in the Vaskoolihiihto cross-country skiing competition in Finnish Lapland with Liikanen in March 2005, completing a 20-kilometre (12.4-mile) course in 1 hour, 57 minutes and 31 seconds. He beat Liikanen’s time by 8 seconds.

In the race for the ECB’s top job, Weber has dropped out, while Liikanen is still in the running.

To contact the reporters on this story: Kati Pohjanpalo in Helsinki at kpohjanpalo@bloomberg.net; Gabi Thesing in London at gthesing@bloomberg.net

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net; Tasneem Brogger at tbrogger@bloomberg.net

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