Trichet's Successor as ECB Head Doesn't Need to Be a Diplomat, Weber Says
“It’s important to be a diplomat for the diplomatic corps, it’s not so important for a central bank,” Weber said in an interview in Frankfurt yesterday when asked if he’s diplomatic enough to head the ECB. “I think it’s very important for central banks to be clearly focused and also, if necessary, to deliver undiplomatic messages to governments.”
Weber’s public opposition to the ECB’s government-bond purchase program in May exposed a lack of unity on the bank’s Governing Council at a time of crisis, prompting some observers to question whether he has all the credentials required to replace Trichet when his term expires on Oct. 31 next year. Weber, 53, declined to comment on whether he’s a candidate for the position, saying he’s focused on his role as Bundesbank chief.
“I have 1 1/2 years of my term left and I will focus on my options at the end of this term,” he said in the interview with Bloomberg Television. “We have a very good president of the ECB. He has more than one year of his term left and we should focus on solving the financial-market problems that lie ahead.”
Trichet’s reputation as a consensus-builder contrasts with Weber’s bluntness. Within hours of the ECB’s unprecedented announcement on May 10 that it would start buying bonds to counter the escalating Greek fiscal crisis, Weber warned of “significant stability risks” and said he hadn’t supported the measure.
“He positions himself explicitly,” Klaus Liebscher, who headed the Austrian central bank from 1995 to 2008 and sat with Weber on the ECB council, said in June. “He’s always honest about his convictions but possibly not always diplomatic.”
JPMorgan Chase & Co. Chief European Economist David Mackie said at the time that Weber’s outspoken positions could make his candidacy for the ECB presidency “difficult.”
The ECB’s bond purchases, which have so far totaled 60.5 billion euros ($78 billion), came in tandem with a European Union-led rescue package that aimed to restore order to markets rocked by Europe’s fiscal crisis. While bond markets have since stabilized, the ECB’s role exposed it to claims it was financing profligate nations at the behest of governments.
Former Bundesbank President Helmut Schlesinger said in May that the purchases needed to be stopped “as soon as possible.”
Weber said yesterday he considers it “very important that, even in a crisis, central banks steer a clear course” and keep their focus “on price stability first and foremost.”
“One of the central bankers I’ve always admired was Paul Volcker,” he said in the interview. “You can call him anything, but not a diplomat.”
Volcker, who led the U.S. Federal Reserve between 1979 and 1987, was criticized for pushing the U.S. into recession as he raised interest rates as high as 20 percent to rein in runaway prices. The moves were so unpopular that he was assigned a permanent bodyguard. Volcker was later lauded for his success in taming inflation and became a role model for the next generation of central bankers.
Weber has sped to the top of European policy making. Like Fed Chairman Ben S. Bernanke, he is a former academic. He joined the Bundesbank as president from the University of Cologne in 2004 and quickly established himself as one of the most influential of the ECB’s 22 council members, often pre-empting policy shifts and moving currency and bond markets with his comments.
Yesterday’s interview was a case in point. Weber pre-empted Trichet by outlining his preferred policy steps for the rest of the year before the ECB’s next interest rate decision on Sept. 2. Weber said that seven-day, one-month and three-month unlimited operations should be continued through the end of 2010, whereas Trichet has only outlined the ECB’s plans until October.
At the same time, Weber’s views on the inflation and growth outlook tallied with the ECB’s current agreed position.
“His comments might perhaps be an irritation to Trichet, who always stresses his prerogative as ECB president to be the ‘porte-parole’ of the council,” said Julian Callow, chief European economist at Barclays Capital in London. Still, his “relatively conciliatory tone” may be “representing some positioning ahead of the determination next year of Trichet’s successor as ECB President.”
Weber is perceived by economists as one of the ECB’s toughest inflation-fighting “hawks” because of the emphasis he places on curbing risks to price stability.
The appointment of Vitor Constancio to the ECB vice presidency in June strengthened Weber’s chances of becoming the bank’s third president by lending balance to his ticket.
Constancio, from Portugal, is known as a “dove” who pays more attention to economic growth. Between them they would also ensure representation from northern and southern Europe at the top of the ECB.
Germany, Europe’s largest economy, hasn’t held a top European policy position since Walter Hallstein led the European Commission’s predecessor institution from 1958 to 1969.
Trichet’s successor will be appointed by EU governments. German Chancellor Angela Merkel has won French President Nicolas Sarkozy’s support to replace Trichet, 67, with Weber, German magazine Spiegel reported in February.
At the same time, Italian officials have said they would support Mario Draghi, currently head of the country’s central bank, for the ECB presidency.
Pressed on the possibility that he’ll take over from Trichet, Weber said in the interview that it’s “too early to discuss this.”
“We are still in a financial-market crisis,” he said. “We should focus all our energy and attention on solving the economic problems that we face.”