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EU Leaders Push Central Bank Choices as Crisis Measures Debated

Draghi, Trichet And Weber
Mario Draghi, governor of the Bank of Italy, left, Jean-Claude Trichet, president of the European Central Bank (ECB), right, and Axel Weber, president of the Deutsche Bundesbank, center, during a group photo in Venice, Italy, on Thursday, Oct. 8, 2009. Photographer: Giuseppe Aresu/Bloomberg

The race to succeed European Central Bank President Jean-Claude Trichet is heating up as political leaders line up candidates for the post after his term ends Oct. 31.

German Chancellor Angela Merkel will start lobbying for Bundesbank President Axel Weber, Bild newspaper said Jan. 16, citing unidentified government officials. A spokesman for Merkel didn’t deny the report. Italian Prime Minister Silvio Berlusconi said Jan. 12 he’d be “honored” if his central bank governor, Mario Draghi, was chosen.

Jostling for the top ECB post comes as European Union leaders negotiate ways to step up their response to the sovereign debt crisis. A successful Weber candidacy may help Merkel on two fronts as she walks a fine line between backing EU efforts to revamp bailout programs for debt-strapped nations, a policy opposed by most German voters and her own coalition partners, while campaigning for seven state elections this year.

“It doesn’t take much to imagine what the German population will think about Merkel agreeing to more aid,” said Carsten Brzeski, a senior economist at ING Groep NV in Brussels. “If she can show she’s doing it for Europe and manages to heave Weber into Trichet’s chair, at least she can say: ‘Don’t you worry about inflation. That’s what Axel is there for.’”

The ECB last week brought inflation-fighting back into the ring, signaling it’s prepared to raise interest rates if needed after euro-area consumer prices breached the bank’s limit for the first time in more than two years.

Inflation-Fighting ‘Hawk’

Weber, who has steered the Bundesbank since 2004, is perceived by economists as one of the ECB’s inflation-fighting “hawks” because of the emphasis he places on curbing risks to price stability.

Yet, the economics professor has polarized ECB Governing Council members with his criticism of the bank’s purchase of distressed countries’ bonds as bankers and politicians clashed over how to stamp out debt contagion.

Weber said in October he won’t change his stripes to become ECB president even as criticism mounts that a lack of diplomacy is damaging his chances.

For months, the ECB has borne the brunt of the crisis-fighting burden, veering from its founding mission by buying 74 billion euros ($99 billion) of debt.

“Monetary-policy responsibility cannot substitute for government irresponsibility,” Trichet told a group of German lawmakers on Jan. 7. “Europe cannot afford to rest halfway, we need to be more ambitious.”


EU officials are trying to forge a “comprehensive plan” to contain the fiscal crisis, Economic and Monetary Commissioner Olli Rehn said on Jan. 12. The package may involve aid to Portugal, debt buybacks, lower interest rates on rescue loans and guarantees against excessive debt, four people with direct knowledge of the negotiations said.

Merkel faces the threat of a rebellion within the ranks of her coalition over any moves to grant additional aid to indebted euro-area states at the expense of German taxpayers. Finance Minister Wolfgang Schaeuble has signaled support for a proposal to boost the effective lending capacity of the EU’s rescue fund, a measure that may need lawmakers’ backing.

Norbert Barthle, budget spokesman for Merkel’s Christian Democratic Union party and its Bavarian sister party, said he expects “significant resistance” to any proposal to expand the European Financial Stability Facility rescue fund, which is at the core of a 750 billion-euro aid package for over-indebted euro countries.

It’s “neither suitable nor necessary” to increase the fund, said Hermann Otto Solms, finance and economy spokesman of Merkel’s Free Democratic coalition partner, on Jan. 13. Solms said the entire parliamentary group would balk at supporting a bigger facility.


Merkel, whose party will contest elections in 7 of Germany’s 16 states beginning on Feb. 20, will start her campaign for Weber by trying to convince French President Nicolas Sarkozy to support his candidacy, Bild said.

Sarkozy was reported by France’s La Tribune newspaper to prefer Italy’s Draghi to become the third ECB president. The Italian banker’s candidacy may be complicated by his previous employment at Goldman Sachs Group Inc., which arranged currency swaps that helped Greece hide the extent of its budget deficit.

EU leaders may take a preliminary decision on a replacement for Trichet as early as March, according to the report. March is when European heads of states will have to agree on a successor for Austria’s Executive Board member Gertrude Tumpel-Gugerell, whose term expires in May.

Luxembourg’s Jean-Claude Juncker, who heads the group of euro-area finance ministers, said on Jan. 4 that EU leaders may not take a decision on Trichet’s successor until October.

Alternative candidates emerging for the world’s second-most important job in the financial world after that of Federal Reserve Chairman Ben S. Bernanke include Finland’s Erkki Liikanen and Luxembourg’s Yves Mersch.

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