Axel Weber to Leave Bundesbank, Throwing ECB Race Open

Bundesbank President Axel Weber
Bundesbank President Axel Weber. Photographer: Hannelore Foerster/Bloomberg

Bundesbank President Axel Weber resigned, ending three days of confusion and opening the field for candidates from Finland to Italy to become the next chief of the European Central Bank.

Weber, 53, “expressed the wish to resign” and will leave office on April 30 with a successor to be named during the next week, Steffen Seibert, a German government spokesman, said today after Weber met in Berlin with Chancellor Angela Merkel. Weber is leaving for “personal reasons” after deciding to step down a year early on Feb. 8 and then being asked by Merkel to postpone the announcement, the Bundesbank said.

The loss of the front-runner to replace Jean-Claude Trichet at the ECB in November leaves leaders balancing whether to reward policy experience or protect national interest in picking Europe’s main monetary official. Weber’s exit erodes the prospect of Merkel ensuring the post goes to a German who might lift domestic faith in the euro damaged by last year’s bailouts of imprudent members.

“Merkel now has her work cut out,” said James Nixon, co-chief European economist at Societe Generale SA in London and a former ECB forecaster. “The emphasis now will be to find an immediate replacement at the Bundesbank and then the search is on for an ECB president. That’s now very murky.”

Other Candidates

Attention shifts from Weber to the qualities of other candidates who, according to 1991’s Maastricht Treaty, must be from the euro area and boast “recognized standing and professional experience in monetary or banking matters.” Likely meeting that criteria are central bankers Mario Draghi from Italy, Luxembourg’s Yves Mersch and Erkki Liikanen of Finland. German Klaus Regling, head of Europe’s bailout fund, may also do so even if he lacks monetary policy experience.

No deadline is set for a decision although German Finance Minister Wolfgang Schaeuble said today the matter would only be addressed after governments decide in March on new steps to end the euro region’s sovereign-debt crisis. The topic is still likely to be a source of conversation at next week’s meeting of finance ministers in Brussels.

Until this week, leaders looking for Trichet’s successor were weighing up Weber’s seven years at the Bundesbank, two decades in academia and citizenship of Europe’s largest economy with his tendency to publicly criticize policies favored by the ECB’s 23-member Governing Council and politicians.

Bond Opposition

Weber’s advocacy of central bank independence and aversion to inflation led him to object to last year’s bond-buying program aimed at staunching the debt turmoil and to question the depth of 2009’s interest rate cuts. In August he told Bloomberg News “it’s not so important” for a central banker to be a diplomat.

Whether leaders would have looked through Weber’s attacks and if he could ultimately have united ECB policy makers became moot points after an associate of his said on Feb. 9 he planned to leave the Bundesbank later this year.

Whoever replaces Trichet on the 35th floor of Frankfurt’s eurotower will become the world’s second most important central banker after Federal Reserve Chairman Ben S. Bernanke. They will also inherit a 17-nation economy of varying growth rates and inflation likely above the bank’s target of just below 2 percent.

Rate Forecasts

JPMorgan Chase & Co. and BNP Paribas SA both said in the past day they now expect policy makers to raise their benchmark interest rate from 1 percent this year rather than 2012. The ECB also intervened to buy Portuguese bonds this week for the first time in three weeks, according to three people with knowledge of the transactions, a sign markets remain strained.

This week’s decline in the euro against the dollar suggests the “FX market is not pleased” by the loss of Weber given his status as an inflation fighter, said Lutz Karpowitz, a currency strategist at Commerzbank AG in Frankfurt. The ECB’s credibility may nevertheless be safe given “the assessment of a central bank should not depend on one person alone,” he said.

Weber’s retreat is a reminder that politics, not economic know-how, will determine who runs the ECB as was the case in 1998 when leaders brokered a deal to hand the Netherlands’ Wim Duisenberg the presidency in return for him stepping down mid-term for Trichet, a Frenchman.

Flopped Bids

Weber also becomes the latest favorite to fail to get a key European job, following flopped bids to run the European Commission by Belgium’s Jean-Luc Dehaene in 1994 and Guy Verhofstadt in 2004 as well as Tony Blair’s campaign to be the first European Union president in 2009.

Merkel must now decide whether to propose another German or seek a kindred spirit elsewhere. Her challenge is to find someone whose appointment will help persuade a disgruntled electorate to keep faith with the euro and monetary union after the country bore the biggest share of bailing out wayward Greece and Ireland. About half of Germans would ditch the euro and return to the deutsche mark, a Dec. 26 YouGov Plc survey showed.

“Germany never said it insisted on a German candidate,” Schaeuble said today. Frank-Walter Steinmeier, leader of Germany’s opposition, told Spiegel Online that Weber’s resignation is a “disaster” for Merkel and accused her of cutting the central banker out of debt crisis talks.

Birthplaces matter in euro politics, especially given the debt crisis which has pummeled the so-called peripheral nations and required the larger core economies to extend aid. Handing power over monetary policy to an official from one of the smaller euro-area members may lead France and Germany, the region’s biggest economies, to fret that their influence is diminished. A southern European at the helm would leave two running the ECB with Portuguese Vitor Constancio already vice president.

Debt Crisis

“When things are behaving normally you could rely on the ECB governing council to make decisions,” said Julian Callow, chief European economist at Barclays Capital in London. “But the debt crisis means it matters much more to the big countries what it’s doing and they would want someone with sympathy for their views.”

The composition of the Executive Board, the six-strong panel which runs the ECB on a daily basis, may also influence the debate. Germany, France, Italy and Spain have traditionally held seats on it and the retirement of Trichet leaves a vacancy for another Frenchman. That may be lost if a candidate from a small nation takes the top slot whereas an Italian or German would likely lead to the departure of current board members Juergen Stark or Lorenzo Bini Smaghi, paving the way for a native of France to replace them.

“It’s hard to see that the French risk not being represented,” said Carsten Brzeski, an economist at ING Group NV in Brussels and former European Commission official.

Regling’s Pedigree

So far, only Regling, 60, has emerged as a German alternative to Weber. While lacking a central-banking pedigree, he helped to establish and now oversees Europe’s 440 billion-euro ($595 billion) rescue fund. He previously served in his country’s finance ministry and ran the European Commission’s economics department. He co-authored a study last year of Ireland’s banking crisis.

“I have a great job,” Regling told reporters in Berlin this week.

Bank of Italy Governor Draghi, 63, is the only declared candidate and was today endorsed as “excellent” by Finance Minister Giulio Tremonti. As chairman of the Financial Stability Board, he is at the core of international efforts to rewrite the rules of global finance. Alongside being a southern European, another potential handicap is his 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.


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.

Erkki Liikanen, 60, has run Finland’s central bank since 2004 and is a candidate with well-established political relations. 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.

Finnish Candidate

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. A hurdle is that fellow countryman Olli Rehn is now EU commissioner for economic and monetary affairs.

Cyprus’s Finance Minister Charilaos Stavrakis said yesterday its government could back central bank governor Athanasios Orphanides, 48. Orphanides is a former Fed economist who advocated slashing interest rates in the recession.

Merkel must also pick a new Bundesbank president. Created in 1957, the institution had the prime responsibility of safeguarding the deutsche mark as the bedrock of Germany’s post-World War II recovery and preventing the runaway inflation that gripped the nation in the early 1920s. Personnel issues have proved problematic for it in recent years, with Ernst Welteke resigning as president in 2004 following a hospitality scandal and board member Thilo Sarrazin quitting last year after comments on Jews and Muslims sparked political outrage.

Jens Weidmann

Jens Weidmann, Merkel’s top economic adviser and a former student of Weber, is a leading candidate to replace Weber, Bild newspaper said this week, citing unnamed government and central bank officials. Shifting Stark to the Bundesbank could also be a solution especially if Merkel still wants a German for the ECB presidency and other governments object to two on the ECB’s executive board at one time.

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