The next European central banker?

An article in Foreign Policy magazine leads me to look at the European Central Bank. “It’s clear,” the article says, “that after Dutch, French, and Italian presidents of the ECB, the Germans believe it is their turn. Germany is the biggest economy in the eurozone and, in many German eyes at least, its anchor and savior.” But the most likely next European Central Bank (ECB) president, according to Bloomberg News, is “Germany’s Jens Weidmann, director of Deutsche Bundesbank since 2011, [who] led the ranking by a large margin with 84 points” out of 100 in a survey of 34 leading European economists.

But Mr Weidmann, Foreign Policy says, “a strong sceptic of any policy initiative that would involve any pooling of risk between members of the eurozone, or the creation of a common safe asset in the eurozone. He has even resisted eurozone deposit insurance on the grounds that eurozone banks have sizeable holding of government bonds on their books.” In other words he is opposed to most of what the ECB is perceived to stand for, and according to Reuters, “Picking the Bundesbank chief for the ECB presidency may be tricky. Although Weidmann is considered a top-notch central banker, he has alienated some officials with his opposition to the ECB’s ultra-easy monetary policy, which is credited with reviving economic growth … [and] … Some other central bank governors regarded this as disloyalty in a time of crisis.

Further, Reuters says, “Weidmann has also ruffled some political feathers, clashing publicly with Italy’s then-prime minister, Matteo Renzi, over Rome’s failure to cut its debt further … [and] … After being on the losing side in the ECB’s big decisions on economic stimulus, Weidmann might also find it hard to unite the Governing Council, which strives for consensus decisions and rarely resorts to voting.

All in all it is tough job to pick the leader of what Foreign Policy describes as “the most demanding central banking job in the world, requiring intellectual caliber, serious political skills, and an ability and readiness to think like a European rather than as a national of a particular member state.”

Wolfgand Münchau, writing in the Financial Times, says “Well-designed institutions should be immune to bad leaders, at least up to a point. That is unfortunately not the case in the eurozone, where the next round of appointments matters more than it should. Choosing Mario Draghi’s successor as president of the European Central Bank in November 2019 will be the most important. There is a good chance that European leaders will get it wrong — in more than one way.

Eurozone leaders,” Mr Münchau . adds, “must now find a successor with a similarly [to MarioDraghi] fine-tuned antenna and readiness to change course when the facts shift. Such candidates are in short supply. It is possible, but not certain, that Germany will propose Jens Weidmann, president of the Bundesbank. Mr Weidmann has voted against all of the ECB’s important decisions over the past few years, including QE. It is not immediately clear how he could forge a consensus in the governing council.

Why does this matter to Canada?

Well recent studies say that by the year 2050 China will be the world’s largest economy ($57 Trillion), the India will be second ($44 Trillion) and the USA will be the third largest economy ($34 Trillion), but the EU, assuming it survives, will likely be nearly tied for third or, more likely in fourth place with something like $25 to 30 Trillion ~ that will be ten times what Canada’s GDP is expected to be in 2050. Europe will still matter. Europe’s finances will still matter, and, therefore, Europe’s central bank will still count. 2050 is only one generation (22 years) in the future. This may be Asia’s century but we, the West, needs Europe … even more so when isolationist and protectionist impulses are on the rise in America.

While I guess I understand the case for quantitative easing when there is a crisis, as in America in 2007-2009, I, personally, am in Jens Weidmann’s camp when it comes to Europe in 2015. I think reforming the €, making it “sound” is a more important monetary policy than is rescuing France, Italy and Spain (and a few others) from the follies of their unsound fiscal policies. I’m not sure the € can or should survive if its raison d’être is to have frugal, hard working Finns and Germans prop up the spendthrift French.

Perhaps if Mr Weidmann is selected he will push Europe towards two Eurozones: a EuroMark zone for e.g. Austria, Finland, Germany, and the Netherlands, and a EuroLira  or EuroFranc zone for e.g. France, Greece, Italy and Spain. That, in my opinion, would be an important step in the right direction.




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