Jockeying begins to take European Central Bank's reins from Draghi

European Central Bank president Mario Draghi
The decision on who will succeed Mario Draghi as European Central Bank president is still a year away, but the jockeying for position is already under way.

The 19 countries that use the euro are preparing for a delicate political dance that will decide who will steer the eurozone economy away from years of easy-money policies. The favorite, Jens Weidmann, the conservative president of Germany’s central bank, risks becoming a lightning rod for criticism of the nation’s dominance of the $14 trillion currency bloc.

The ECB recently received legal advice that a French member of its executive board, Benoît Coeuré, could be elevated to president, people familiar with the matter said, adding another potential candidate to the pool. Many European officials had assumed executive-board members were ruled out under European law.

Governments pick the ECB’s president, and the decision will likely involve an elaborate compromise over other top European Union jobs, including the head of the bloc’s executive. EU officials say they believe Germany has a strong claim on the top ECB job, partly because a German has never held it.

Still, the legal discussions underscore the challenge facing European leaders as they prepare to name a successor to Mr. Draghi, an Italian who is the ECB’s third president in its two-decade history and played a dominant role in navigating the Continent through its debt crisis. Unlike Federal Reserve chairs, he can’t be reappointed after his eight-year term ends in October 2019.

The development—which hasn’t been previously reported and appears to have been kept to a relatively small circle of officials—underscores how the currency union is still a work in progress more than two decades after the ECB’s creation.

It could complicate the ascension of Mr. Weidmann, who vocally opposed signature policies initiated by Mr. Draghi, including large-scale bond purchases that have been credited with saving the eurozone from collapse. At a minimum, the discussions suggest Mr. Weidmann is far from inevitable.

Several officials on the ECB’s 25-member rate-setting committee are skeptical, or outright hostile, in private, to the idea of being led by someone who has frequently broken with the bank’s tradition of decision-making by consensus, and even testified against the ECB in German court over a bond-purchase program.

“Draghi’s successor could reshape the ECB,” said Martin Lueck, chief German investment strategist at BlackRock Inc. But “the choice is pretty narrow. Many investors have been asking themselves the question: Who else can it be but Weidmann?”

There are 18 other national bank governors, but none stand out as an obvious alternative. 

That has put added focus on the six-person executive board. EU law states that members of the executive board, which includes the president, serve eight-year terms that are nonrenewable.

But the ECB’s lawyers see a loophole that might allow board members such as Mr. Coeuré, a former French Treasury official whose term ends next year, to serve a fresh eight-year term as ECB president, assuming they first resign their current positions, people familiar with the matter said. “It’s a legal gray area,” two of the people said.

While the ECB has no official role, Mr. Draghi might be consulted given his dominant role in steering the bloc through its debt crisis and could propose someone like Mr. Coeuré as a viable alternative if Mr. Weidmann is considered too contentious.

The ECB and Bundesbank declined to comment.

“Although there is no precedent on this matter, stepping down from the board as a board member in order to be later on appointed president would seem to be possible from a legal point of view,” said Pieter Van Cleynenbreugel, professor of EU law at the University of Liege in Belgium.

The executive board would seem an ideal training ground. In the U.S., the latest three Federal Reserve chairs have served on the board of governors, its equivalent to the ECB executive board. The headquarters-based positions put board members in proximity to Mr. Draghi. Mr. Coeuré, in particular, is widely seen as one of Mr. Draghi’s top lieutenants, serving as the ECB’s point man with international counterparts and the financial markets. 

While he supported Mr. Draghi’s easy money policies, Mr. Coeuré has recently led calls to phase them out soon. Like Mr. Weidmann, he is from a large country considered part of Europe’s fiscally conservative north, which would help to create a balance with the ECB’s Spanish Vice President, Luis de Guindos. A strike against Mr. Coeuré is that his countryman Jean-Claude Trichet occupied the ECB’s top post before Mr. Draghi.

Although the other four executive board members could conceivably become president under the lawyers’ thinking, the guidance seems to apply mostly to Mr. Coeuré.
German Chancellor Angela Merkel hasn’t signaled whether she will push the claim of Mr. Weidmann, her former economic adviser, which might require politically tricky concessions to other countries on issues like a common eurozone budget.

Ms. Merkel has been weakened politically by a fight within her governing coalition over migration, but it isn’t clear if that will hurt or help Mr. Weidmann’s chances. The chancellor may no longer be able to resist the demands of her conservative allies, who would like to see a German at the head of the central bank.

No candidate has openly declared an interest. But a handful of officials have flirted with the idea while bolstering their pan-European credentials.

In a lengthy interview with German public radio ON Sunday, Mr. Weidmann expressed willingness to take up new responsibilities within the ECB.

“It would be peculiar if I were to say…look, I prefer to stand on the sidelines and criticize monetary policy, instead of helping to shape it if the opportunity arises,” he said. He also discussed his taste for Italian cuisine, his Italian breed of dog, and his past work with French President Emmanuel Macron, who will have a strong say in naming the next ECB chief as head of the No. 2 eurozone economy.

But while Mr. Weidmann has toned down his criticism of ECB policies in recent months, he has also indicated he wouldn’t change his positions to win the top job.

Mr. Weidmann “does not seem the most obvious candidate,” said a senior official at a eurozone finance ministry. “Doubts have been expressed as to how someone who has often voted against the consensus could be capable of federating views in the future board.”

Other potential candidates include Klaas Knot, the Dutch central banker; Erkki Liikanen, who retires this month as Finland’s top central banker; and Irish central bank Gov. Phillip Lane. Another possibility is France’s central bank governor, François Villeroy de Galhau, who has family ties to Germany and speaks good German.

Mr. Coeuré declined to comment for this article, but speaking on French radio in June, he refused to rule out running for the top job. “Let’s come back to that again in six months, or a year.” 

Source: The Wall Street Journal

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