ECB desperately seeking captain

The clock is ticking. In eight months, Jean-Claude Trichet will be leaving the ECB President’s office on the 35th floor of Frankfurt’s Eurotower. At the same time, the man who was tipped to replace him, Germany’s Axel Weber, has excluded himself from the succession race with all the elegance of an enraged child who has just broken his favourite toy. Weber, who has openly criticised Trichet’s policies and recently announced that he will resign from his post at the head of Germany’s Bundesbank, has effectively ruined his chances of taking over at the ECB. So who will step up to the plate? Uncertainty over the future incumbents of key EU posts is nothing new, but in this case the situation has been made all the more urgent by the huge firestorm that devastated the global economy in 2008. At a time when the flames are still burning on the fringes of Eurozone and a fresh outbreak may flare up at any moment, Europe can simply not afford to enter into a protracted argument over the identity of the future fire chief.

The problem is that the ECB presidency is a very difficult post to fill. As the economists at Barclays have remarked, the job description is real headache. The new incumbent will have to forge a consensus on the bank’s governing council (and its Executive Board). He will have to represent the Eurosystem on the highest level at central-bank chief and Eurogroup meetings, as well as before the European parliament and a large number of other international and European bodies. In a nutshell, the future president will have to have the technical expertise and ability to manage all the details, and the leadership qualities required to exercise genuine authority.

The brief requires a range of skills: not only the political and managerial skills that Weber obviously lacked, but also, and more importantly, technical skills. In the past, central bank chiefs were recruited for their political contacts rather than their economic abilities. Alan Greenspan, the “maestro” at the US Federal Reserve until 2006, was first and foremost a former advisor of President Ford and President Nixon, who happened to be in the right place at the right time. Ernst Welteke, Weber’s predecessor, was an SPD politician and the former finance minister for one of Germany’s regional states. But those days are now over.

Over the last decade, the management of monetary policy has become a highly technical business that requires extensive knowledge of sophisticated economic models. It was on this basis that the Princeton academic Ben Bernanke took over from Greenspan, and Herr Professor Doktor Axel Weber succeeded Welteke. As it stands, a younger Trichet would probably not make the grade today. Bring on the economists!

Then there is the issue of candidates’ profiles, because to be accepted, the future ECB president must be well-known in international finacial circles, which in itself is not a new requirement. To quote Belgium’s Alexandre Lamfalussy, who directed the European Monetary Institute which was the forerunner of the ECB, the select milieu of central bankers “is a real Freemasonry.” Before his arrival at the ECB, Jean-Claude Trichet had passed a number of initiation rights: he was a former Chairman of the Paris Club charged with sovereign debt rescheduling in 1985, Director of the Treasury Department in 1987, and Governor of the Banque de France in 1993.

Finally, there is one further requirement dictated by the functioning of the EU. Nominations to senior posts in European institutions have to take into account a number of unwritten rules which regulate the balance of national and supranational interests. The Executive Board of the ECB is composed of six people including the bank’s president. The established protocol for membership of this board is as follows: the six members must include one woman, no two members can be from the same country, no more than two “small countries” can be directly represented, and the president or the vice-president must be from a “non-southern” European country... GIven that the vice-presidency is currently occupied by Portugal’s Vitor Constâncio, this final principle could theoretically put paid to plans to appoint reputed economist, Financial Stability Forum Chairman and Italian Central Bank Governor, Mario Draghi, who is now the main candidate in the running.

As it stands, there is no candidate who satisfies the three criteria of skills, notoriety and European protocols. So the question now is which of these stipulations will be sacrificed in the run-up to June announcement of the next ECB president.