Baltic Business Research

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Bundesbanks chef Axel Weber vill inte längre bli president för den Europeiska Centralbanken (ECB). Han har också tröttnat på chefsrollen i Bundesbank – ett mandat som ex officio betyder rösträtt vid ECB:s räntebeslut. På senare tid har Weber befunnit sig i en minoritetsposition med sin skepsis mot ECB:s köp av oattraktiva obligationer från problemtyngda EMU-länder.

Därför är det konsekvent och rätt att han snart lämnar centralbanksvärlden. Detta steg kan dock ge ECB:s trovärdighetsproblem  – om inte Trichets efterträdare uppfattas som ett stabilitetsankare. Finlands centralbankschef Erkki Liikanen vore en bra kompromisskandidat, möjligen också den relativt tillbakadragne ECB-ledningsledamoten Jürgen Stark (om det nu ska bli en tysk).

För EMU-kandidatländerna runt Östersjön kan det också vara av intresse vem som blir ECB:s nya president, även om det  är regeringscheferna som fattar det formella beslutet och ett EMU-inträde. En alltför lätt övergång till euron kan på sikt komma att innebära en björntjänst för nuvarande euro-kandidatländer. Det finns – som bekant – en rad aktuella negativa exempel på dylika länder.

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The president of the German Bundesbank and voting member of the ECB:s Governing Council, Axel Weber, will be stepping aside from May 1. The resignation of Weber means new challenges for the ECB and – in the worst case – much more troubles than generally expected at this stage. For quite some time, Axel Weber seemed to be the most probable candidate to take over the presidency of the ECB in November this year after the current head of the ECB, Jean-Claude Trichet. Now he’s out – which gives reasons to some question marks and concrete concerns.

1. Serious reasons for Weber’s resignation.
I cannot find it encouraging to note Weber’s main reason for his resignation, i.e. his minority position when it comes to the fundamental need of fiscal stability in Euroland. The reason for this isolation was that he opposed to the ECB’s purchasing of bonds from troubled EMU-member countries. The risk that the ECB may develop into a “moral hazard” institution is not negligible when sovereign markets get into turmoil again, according to Weber implicitly.  I share this view.

2. The head of the ECB must be a strong leader.
Without doubt, Weber’s position in the ECB’s Governing Council has been weakened in recent months. During a meeting two weeks ago with a German friend and colleague – who also frequently came to see and listen to Weber –  I doubted Weber’s ambitions to become the president of the ECB. My colleague did not. My point was exactly the declining national and international support of Weber.  This was obviously the case. Even chancellor Angela Merkel seems to have diminished her appreciation of Axel Weber during the past few months. Consequently, it wasn’t that difficult to guess that an analytically educated and outspoken guy as Axel Weber would not appreciate to look for compromises between Southern/Western European “fiscal sinners” and stability-oriented Northern EMU countries.

3. Inflation targeting alone would be wrong
There is a possibility that the future head of the ECB may be a supporter of direct inflation targeting. However, this would not be positive since too unilateral concentration on inflation could take attention away from more systematic focusing on credits and asset prices. It would not either be a good idea to change monetary policy towards the American model (which also includes the support of employment and bond  prices). I cannot imagine that such an approach would work in the eurozone with 17 member countries.

4. Softer view on future EMU members?
I always have been opposing to early entries of EMU candidate countries. And I got scared again when chancellor Merkel and president Sarkozy the other day quite strongly were supporting Poland’s current ambitions to join the euro by 2015. Who knows already right now about the economic situation of Poland and other EMU-candidate countries four years from now? Sure, the final decision of such a step will be made by the heads of states or governments. But the ECB can influence these political decisions – and should therefore refrain from supporting soft interpretations of qualifying standards for countries that still (may) need important structural changes in the future and therefore one day could benefit from flexible exchange rates.

5. The next president should come from a country with healthy fundamentals – this time from Suomi?
Without talking about specific people, the next president of the ECB should come from a country with more or less healthy fundamentals, e.g. from Germany, the Netherlands (which, however,  already had an ECB president), Austria or Finland. This opens the door somewhat for the current German chief economist of the ECB, Jürgen Stark. Mr. Nowotny, the president of the Austrian Central Bank, should not  be ruled out completely either. My best two guesses, however, are different: Governor Erkki Liikanen from the Bank of Finland or a “deus ex machina” – someone nobody thinks about right now. Could such a person be competent Yves Mersch from Luxemburg (despite Luxemburg’s favoring of eurobonds backed by EMU states collectively – which is strongly disliked by Angela Merkel!)? Anyway, in the eyes of many experts, the main favorite is still Italy’s experienced Mario Draghi who once worked at a big investment bank that supported the financing of the enormous Greek deficits. The big question, however, could be what happens if Italy once should be involved in a serious debt crisis.

To summarize:  We should not forget that the forthcoming nomination of a new ECB president will be decided by political leaders. The important thing for them is to find a strong ECB leader who can maintain credibility of the ECB and the euro – and an ECB leader who can find the compromises and limits in the Governing Council that are still acceptable to maintain necessary credibility on financial markets. This won’t be easy!