The chronicle of departures of the four members of the Executive Board is as follows:
– Vitor Constãncio, Vice-president, will leave on May 31, 2018;
– Peter Praet, Member of the Executive Board, will leave on May 31, 2019;
– Mario Draghi, President, will leave on October 31, 2019;
– Benoît Cœuré, Member of the Executive Board, will leave on December 31, 2019.
If the nationality of the successor to the Italian Mario Draghi should have little importance, the fact remains that several different European capitals have started to push their pawns. The first one to leave the ECB Executive Board is the Portuguese Vitor Constãncio; Spain is banking on its Minister of Economy, Luis de Guindos, to replace the institution’s current Number 2. This first appointment is expected to take place officially in March. If Southern Europe (the doves) remains at the vice-presidency of the ECB, the presidency could probably pass into the hands of Northern Europe (the hawks). Jens Weidmann serves as a favourite in the race to succeed Mario Draghi. While observers like to label him as a hawk, he spends a lot of time tempering the words of some of his German collaborators, making him perhaps a hawk among hawks… Other names, such as that of the current governor of the Bank of Ireland Philip Lane, have also been mentioned. While his economic background and reputation are his first assets to run for the ECB’s presidency, some see him more in place of the current chief economist Peter Praet or Benoît Cœuré, who will leave in 2019.
At the same time, the name of the French François Villeroy de Galhau, the current governor of the Banque de France, comes up often when we talk about Mario Draghi’s successor. While his profile fits perfectly with the position, he has one major handicap in this campaign: his nationality. Indeed, a Frenchman has already held this position just before Mario Draghi while it is not yet the case of the Germans. Some would see him in another role: that of Finance Minister of the Eurozone, an important position that could emerge if the European Union is moving quickly in the construction of a European government.
At the end of the day, the new faces and especially the nationalities of these new faces are highly strategic and political. Indeed, if Madrid pushes de Guindos’ candidature to the vice-presidency, Mario Draghi’s place would have a great chance of being occupied by a German and it is currently the candidacy of Jens Weidmann that seems to make consensus. This is why the nationality of the future Number 2 of the institution is a strong signal as for the choice of the nationality of the future Number 1… Indeed, while the ECB starts its turn towards the normalization of its monetary policy, to put a hawk in the presidency of the institution based in Frankfurt and a dove to the vice-presidency would more rapidly bridge the monetary policy gap between the United States and the Eurozone at a time when we are no longer talking about recovery but economic expansion within the monetary union. When globalization is weighing on structural low inflation across the world, it seems highly likely that a financial crisis – if there is a financial crisis – is to become quickly systemic. The ECB would then lack some room for manoeuvre on monetary policy to absorb this type of shock while on the other side of the Atlantic, the balance sheet of the Federal Reserve is already declining.
To be continued…
Julien Moussavi, Head of Economic research