Mersch May Become ECB Contender as Former Gymnast Taps German Price Angst

Yves Mersch lost out on the European Central Bank’s vice presidency last year. He could still move to Frankfurt: as ECB President.

Luxembourg’s central banker, an art-loving former gymnast with a penchant for colorful glasses, may become a compromise candidate for the top ECB job after the frontrunner, Germany’s Axel Weber, withdrew from the race last month, said economists at ABN Amro Bank NV and Royal Bank of Scotland Group Plc. The current favorite, Italy’s Mario Draghi, must overcome the stigma of a prime minister embroiled in a sex scandal and his country’s poor track record of containing inflation.

The decision on who will replace Jean-Claude Trichet at the ECB’s helm when his eight-term term expires on Oct. 31 may rest with Germany, Europe’s largest economy, which hasn’t occupied a top European post since 1967. With Weber’s surprise exit leaving Chancellor Angela Merkel without an obvious candidate, Germany’s preference for an inflation-fighting ECB president in the Bundesbank mould may play into Mersch’s hand.

“Mersch stands a good chance as a compromise candidate if Germany decides not to field its own candidate,” said Nick Matthews, a senior economist at Royal Bank of Scotland in London. “Mersch offers a similar viewpoint as Weber, and would therefore appeal to the Bundesbank traditionalists. At the same time, he has the diplomatic skills that Weber was said to be lacking.”

ECB Veteran

Mersch declined to comment on whether he’s interested in Trichet’s job during a press conference in Luxembourg today. In the central bank’s quarterly report, he said “strong vigilance” is needed to stem inflation risks, indicating he supports raising ECB interest rates next month.

Mersch, 61, is one of the longest-serving members of the ECB’s now 23-strong Governing Council, having been there since the bank’s inception in 1998. He is also Luxembourg’s first central bank governor. Prior to the introduction of the single currency on Jan. 1, 1999, his country, with just over 500,000 inhabitants, was in a monetary union with neighboring Belgium.

A lawyer rather than an economist by training, Mersch is a former head of Luxembourg’s Treasury and had stints working at the International Monetary Fund and United Nations in the late 1970s and early 1980s. His international experience may help him forge consensus among ECB policy makers from the euro area’s 17 nations.

‘Not Afraid’

“He’s not afraid to express his view and can also accept that others may not share the same view,” said Pierre Gramegna, director general of the Luxembourg Chamber of Commerce, who has known Mersch since the early 1980s. “He’s at ease as a speaker and does this always very well, whether in English, French or German.”

Married with two children, Mersch frequently speaks at conferences across Europe. A lack of time means he had to give up gymnastics, a sport he says he avidly pursued until the age of 45. He now walks 20 minutes to work every day to keep fit.

A pride in his home country is not only evident in his support of Luxembourg artists, two of whom have their work displayed in the central bank’s entrance hall. Mersch has glasses that reflect the colors of the Luxembourg flag, a red pair, a white pair and a blue pair, with a fourth one in green.

Mersch revealed his ambition to win a top ECB post when he threw his hat in the ring for the vice presidency last year, losing out to Portugal’s Vitor Constancio.

Northern Hawk

That decision could now work in his favor as politicians may not want to team two southern Europeans at the ECB’s helm, said Matthews. In the same way, Mersch’s reputation as an inflation-fighting hawk would contrast with Constancio’s more dovish, growth-supporting stance, he said.

Former German Chancellor Gerhard Schroeder threw his weight behind Mersch last month, telling the Handelsblatt newspaper he would “be in favor of a representative of a small, stability oriented country like Luxembourg” succeeding Trichet.

Germany’s choice will also need France’s blessing, which may work in Mersch’s favor, said Astrid Lulling, a Luxembourg member of the European Parliament. “As a Luxembourger, he understands both the German and French mentality,” she said.

Lulling rejected the suggestion that Luxembourg can’t provide the next ECB president because it already holds a high- ranking European post as chair of the group of euro-area finance ministers. Jean-Claude Juncker’s term in that role comes up for renewal next year and since the next ECB president takes over in November, there would only be a short overlap, she said.

Draghi’s Credentials

Draghi’s experience as head of the Financial Stability Board, where he helped to rewrite global financial rules, make him the most qualified candidate to succeed Trichet, investors from RAB Capital Plc, Sturgeon Capital LLP and Signet Group said at the Bloomberg Link Hedge Funds conference in London last week.

Heads of state, who convene at a summit in Brussels on March 24, haven’t indicated when they will make a decision on Trichet’s successor.

Ireland’s Paddy Power Plc is offering odds of 8 to 1 on Mersch getting the job. The favorite is Draghi, followed by Erkki Liikanen from Finland, the bookmakers said.

“By rights the job should go to the best candidate, which is Draghi,” said Nick Kounis, chief European economist at ABN Amro in Amsterdam. “But the discussions are never just about personal attributes. The doubts about Draghi open the doors to a number of compromise candidates.”

To contact the reporters on this story: Stephanie Bodoni in Luxembourg at sbodoni@bloomberg.net; Gabi Thesing in London at gthesing@bloomberg.net

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net; Craig Stirling at cstirling1@bloomberg.net

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