The Next ECB President?

Axel Weber, currently President of the German Bundesbank, announced almost a month ago he would not be seeking another 8-year term after his current tenure expires next year.  This essentially ends his potential candidacy as the next European Central Bank President after Jean-Claude Trichet’s term ends on October 31 of this year.  The German was the frontrunner for the upcoming appointment, and his disinterest came as a surprise to many.

Mr. Weber cited his conflict with various leaders of EU nations following the economic crisis the region has seen in the last few years as his reason for not running.  As European nations began falling deeper into debt, the ECB debated buying the bonds of the distressed countries.  Weber’s suggestion was to hold off and not buy failing government bonds- essentially, not bail out countries such as Greece and Ireland.  Weber did not make many friends with his hardline policies, and when questioned regarding his resignation, he claimed “personal reasons” were the motive. This leaves German chancellor Angela Merkel in a tough position, although it seems as though the candidacy has most likely been filled by Yves March, the current Governor of the Central Bank of Luxembourg.

Mersh’s policy aligns very closely with what Germany wants to see regarding the future of the ECB.  Merkel is looking for a President who will curb inflation, keep spending down, and essentially avoid another debt crisis like Greece and Ireland experienced last year.  In addition to being Luxembourg’s first governor of the central bank, Mersh has served on the ECB’s Governing Board since its inception in 1998.  The Luxembourg central banker is no stranger to Eurozone exposure and is widely viewed as a strong potential candidate should Germany decide to back him.

The current frontrunner for President of the European Central Bank is the sitting Governor of the Banca d’Italia, Mario Draghi.  Although he has served since 2006, officials throughout the Eurozone have questioned his abilities to deal with inflation, mainly because Italy’s financial situation is currently under fire.  Draghi’s most recent announcement on February 16 reaffirmed the necessity for the ECB to closely watch inflation rates and assess methods for best returning to normal monetary conditions: “Monetary policy must prevent a deterioration of expectations, in order to keep the stimulus of international prices from passing through to domestic prices and wages in the longer term.”  This recent focus has somewhat assuaged concerns regarding the Italian banker's policies.  Along with Draghi’s European exposure, he has been the head of the Financial Stability Board since 2006.  The board includes representatives from the G-20 major economies and the European Commission.  The Board’s focus is the promotion of financial stability and it routinely collaborates with The World Bank and International Monetary Fund in order to produce suggestions aimed at encouraging financial stability.  These ideas aim at tackling issues at both the firm and the global levels.  This exposure has arguably given Draghi significant pull and has put him in a key position to succeed Jean-Claude Trichet.

The European Central Bank benchmark interest rate has hovered at 1% for nearly two years, which keeps the fear of rapid inflation in plain view- an issue the Trichet’s successor must address during his or her term.  The need for the Eurozone to stabilize growth and raise interest rates is something the next ECB President will have to carefully balance within the political realm.  Both candidates mentioned above are at the forefront of the Presidential candidacy race, but given current unrest in the Middle East, North Africa, and the debt-ridden nations within the EU itself, the future President of the ECB is anything but decided.