By David Marsh
For two years momentum has been building for a German – Axel Weber, the Bundesbank president – to become the next head of the European Central Bank when Frenchman Jean-Claude Trichet retires in the autumn of next year. The idea is a thoroughly bad one. It is time for Germany, the strongest country in the eurozone, to say it will not field its own candidate, and make way for a nominee from a smaller state.
The issue has gained importance as the ECB has taken on a more political role as guardian of the embattled single currency. But German commentators who link Mr. Weber and the stability of the currency miss the point. Giving the Germans the top monetary job would probably inflame north-south divisions in Europe. Yet, at the same time, Berlin would have a greater chance of enforcing policies it supports if it continues the current arrangement of two “ordinary” German representatives on the ECB Governing Council, rather than one of these taking over the presidency.
This time, in-fighting risks being far worse. In a time of crisis no one wants Mr. Trichet to become a lame duck. So it would be an act of statesmanship for German chancellor Angela Merkel and French president Nicolas Sarkozy to announce in the next few weeks that a decision will be made in summer 2011 – and that the new ECB chief will come from neither of the eurozone’s largest two countries.
Mr. Weber has been criticized by some European politicians for allegedly trying to further his candidature, and (more discreetly) by some members of the ECB council for damaging the central bank’s team spirit. In May, he publicly disagreed with an ECB decision to buy bonds from Greece and other weaker euro members, saying the move created “considerable risks”. In fact, by putting distance between himself and the council majority, Mr. Weber may have been indirectly signaling his lack of interest in the top ECB job.
The Bundesbank is already subject to conflicts of interest over these bond purchases. Many influential Germans think the ECB has reneged on the “no bail-out” pledge at the heart of monetary union. Yet, with the largest government bond-dealing department among eurozone central banks, the Bundesbank is carrying out the lion’s share of the purchases – even though they have recently slowed to a trickle.
More destabilizing disagreements on the council are near-inevitable as the ECB grapples with the enormous monetary challenges of austerity, along with rising debt among southern euro members and export-led growth among northern creditor states. In 2012, the year after the new ECB president takes charge, many experts predict Greece will have to restructure its debt. Mr. Weber, and Germany, would be in an untenable position if a representative of Europe’s largest creditor state, and the one most opposed to inflation, was in charge of further bail-out efforts.
Some politicians in Europe see the rise in influence of German-style fiscal discipline, and the growing prominence of people such as Mr. Weber in monetary policy, as evidence of a Germanic takeover of Europe. However, strategic thinkers in the weaker countries (including France) might well back Mr. Weber’s candidacy as a means of binding Germany into a troubled euro project that has never been popular with the German public. For all these reasons, the presidency of the ECB is something the Germans should avoid.
History may indicate an acceptable compromise. A non-German would be the best bet to hold the ring in an ECB council that looks likely to become more fractious. Mr. Duisenberg’s tenure showed the value of a well-respected president from a smaller country. After Mr. Trichet’s reign, it may be time for a president from a small country again. Germany and France should think seriously about who that should be.