Draghi Gains Merkel’s Backing for ECB Post as Political Opposition Withers
“I know Mario Draghi,” Merkel told Die Zeit newspaper in an interview published today. “He’s a very interesting and experienced person. He’s very close to our ideas of a stability culture and solid economic policy. Germany could support his candidacy for the office of the ECB president.”
Merkel’s remarks, her first to mention a candidate for the ECB post by name, were confirmed by the Chancellery and by her chief spokesman, Steffen Seibert.
Draghi, who is governor of the Bank of Italy, will inherit the ECB presidency from Jean-Claude Trichet as the central bank fights a sovereign debt crisis that has forced Greece, Ireland and Portugal to seek international bailouts. Other nations should emulate Germany to help stamp out the crisis, Draghi told the Frankfurter Allgemeine Zeitung in February, calling for tougher sanctions for budget-rule breaches.
Euro area finance ministers tentatively plan to make the ECB nomination when they meet in Brussels on May 16. That would pave the way for Draghi’s formal appointment at a June 24 European summit.
‘Far Enough Advanced’
Merkel backs Draghi if his ECB candidacy becomes official, government spokesman Christoph Steegmans told reporters in Berlin today. The chancellor spoke with Italian Prime Minister Silvio Berlusconi by phone yesterday, he said, declining to give any details of the conversation.
“The necessary preliminary talks at the national and international levels are far enough advanced that we can make this announcement,” Steegmans said.
The euro failed to react as the news broke. It was down 0.12 percent to $1.4339 as of 2:28 p.m. in Berlin.
Germany is the last of the four biggest euro-region countries to endorse Draghi after French President Nicolas Sarkozy told Berlusconi on April 26 that he would back an Italian. Spanish Finance Minister Elena Salgado called Draghi an “excellent candidate” the next day.
Weber Pulls Out
Trichet’s eight-year ECB term ends in October, creating an opening at the top of the world’s second-most powerful central bank after the U.S. Federal Reserve. While Germany alone cannot dictate who wins the post, its status as Europe’s largest economy and biggest guarantor of aid to peripheral euro countries make it the dominant voice in the appointment.
Draghi became the frontrunner in February when Germany’s contender, then-Bundesbank President Axel Weber, pulled out of the ECB succession race. Jens Weidmann, formerly Merkel’s chief economic adviser, took over at the helm of the Bundesbank this month.
Draghi will take over an ECB that is very different to the one that Trichet inherited in November 2003. As ECB president, Draghi will have to eventually steer the central bank out of the debt crisis that forced it to take the unprecedented step of buying government bonds, a move some council members said jeopardizes its independence.
The ECB is also trying to convince politicians that Greece can’t be allowed to restructure their debts, a move that Executive Board member Lorenzo Bini Smaghi says could see part of the Greek banking system collapse.
At the same time, Draghi will also have to convince investors and voters that he can fulfill the ECB’s primary mandate and get inflation under control. Germany’s biggest- selling Bild newspaper earlier this year raised questions about whether an Italian could be trusted to get a grip on prices given the country’s inflationary history. The newspaper last month backed Draghi’s campaign, saying that Merkel wanted to support “the most German of the remaining candidates.”
Inflation accelerated to 2.7 percent in April, the fastest pace in 2 1/2 years and the ECB raised interest rates in that month for the first time in three years.
Draghi, a Massachusetts Institute of Technology-trained economist, has worked at the World Bank and Goldman Sachs Group Inc. He is also chairman of the Financial Stability Board, which was established by the Group of 20 nations in 2009 to oversee development of standards to strengthen global regulation.
In a sign Draghi understood the need to meet German skepticism head on, he appealed to the German inflation-fighting mindset, saying on April 13 that monetary policy is still “accommodative” even after the ECB raised its benchmark rate on April 7.
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