Joerg Asmussen and Benoit Coeure join the ECB’s six-member Executive Board as the sovereign debt crisis enters its third year, replacing Germany’s Juergen Stark and Italy’s Lorenzo Bini Smaghi, who both departed prematurely. Asmussen, 44, was Germany’s deputy finance minister, while Coeure, 42, served as the French Treasury’s No. 2 official.
“It’s fresh blood at the table and they may bring a different approach,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London. “Because they come from the heart of government there may be a risk that it’s seen as becoming too political, but I doubt that the ECB will entertain anything that will be seen as endangering its independence.”
The new arrivals transform the ECB’s core policy-making panel just as the debt crisis threatens to tip the 17-nation economy into recession and raises questions about the future of the euro. Four board positions have now changed hands in the past seven months and a fifth is up for grabs in May when Jose Manuel Gonzalez-Paramo of Spain ends his term.
“I’m not sure that the personalities matter that much at this stage,” said Marchel Alexandrovich, senior European economist at Jefferies International in London. “The ECB has a clear roadmap. It will need to do what is necessary to fight deflation, and that will mean further rate cuts and quantitative easing. Germany was outvoted on bond purchases and going forward there will be a majority for other measures.”
The ECB has reduced its benchmark rate (EURR002W) to 1 percent, matching a record low, and flooded banks with cheap loans in an effort to keep credit flowing to the economy. It has resisted pressure to step up its bond purchases (ECBCSMP), putting the emphasis on governments to solve the debt crisis with fiscal reforms.
Asmussen and Coeure will both vie for the ECB chief economist role vacated by Stark, who threw in the towel two and a half years early after the bank started buying Italian and Spanish government bonds to contain the debt crisis, a policy he opposed.
While the purchases aim to restore transmission of the ECB’s monetary policy on financial markets, “we are also reducing interest rates for the sovereign,” Stark told Bloomberg News in August. “That’s where the problem is.”
‘Closer to Government’
By contrast, Coeure signaled in testimony to the European Parliament on Dec. 13 he may support further bond purchases. “If we feel there is a deterioration in terms of the transmission of monetary policy, then we should do more,” he said.
“It’s a good thing that the new people are closer to government,” said Stephane Deo, chief European economist at UBS AG in London. “The last two years were quite fraught on that front. The crisis has dragged the ECB into new territory, but I don’t really think anyone can argue that it’s not independent.”
Still, Bini Smaghi was pressured by Italy and France to make way for a French policy maker on the board after Mario Draghi succeeded Jean-Claude Trichet as ECB President on Nov. 1. Italy won France’s backing for Draghi on condition Bini Smaghi vacate his seat.
While ECB statutes prohibit political interference, the euro area’s four largest economies unofficially demand representation on the board. As pressure grew on Bini Smaghi to depart in June, the ECB insisted its board members are “appointed for eight years” and take decisions in “full independence.”
‘Should I Kill Him?’
Bini Smaghi, whose term was due to end in 2013, held firm, prompting France to call on then Italian Prime Minister Silvio Berlusconi to honor his commitment. “What should I do, should I kill him?” Berlusconi said in October. Bini Smaghi announced his resignation on Nov. 11 and will join Harvard University’s Center for International Affairs.
Coeure joined the French Treasury in 1995 after working for Insee, France’s national statistics office. In 1999 he became head of the ministry’s foreign-exchange market and economic- policies unit, before moving on to Agence France Tresor, where he gained market experience handling sovereign debt sales. He became deputy chief executive of the AFT in 2002 and was appointed chief executive in 2006.
Asmussen has been a key negotiator at the heart of Chancellor Angela Merkel’s government since she came to power in 2006 and helped to draw up plans for the Greek debt writedown. He and new Bundesbank President Jens Weidmann studied together under the previous Bundesbank chief, Axel Weber, when he was a university economics professor. Weber, a frontrunner to succeed Trichet, resigned his post at the Bundesbank in February over the ECB’s bond purchases.
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