Draghi Unopposed as New ECB Head

Germany supports Italian’s candidacy to succeed central bank's Trichet.

German Chancellor Angela Merkel signaled her backing for Mario Draghi as the next president of the European Central Bank, leaving the Bank of Italy governor unopposed by Europe’s political leaders.

“I know Mario Draghi,” Merkel told Die Zeit newspaper in an interview published today. “He’s a very interesting and experienced person. He’s very close to our ideas of the stability culture and solid economic policy. Germany could support his candidacy for the office of the ECB president.”

Merkel’s remarks, her first to mention a candidate for the ECB post by name, were confirmed by the Chancellery and by her chief spokesman, Steffen Seibert.

Germany is the last of the four biggest euro-region countries to endorse Draghi after French President Nicolas Sarkozy told Italian Prime Minister Silvio Berlusconi on April 26 that he would back an Italian. Spanish Finance Minister Elena Salgado called Draghi an “excellent candidate” the next day.

The euro failed to react as the news broke today. It was up 0.25 percent to $1.4392 as of 12:26 p.m. in Berlin.

Euro area finance ministers tentatively plan to make the ECB nomination when they meet in Brussels on May 16. Germany has previously signaled that European leaders will make a decision on an ECB candidate at a June summit.

Weber Pulls Out Draghi became the frontrunner in February when Germany’s contender, then-Bundesbank President Axel Weber, pulled out of the race to succeed Jean-Claude Trichet at the ECB. Jens Weidmann, formerly Merkel’s chief economic adviser, took over at the helm of the Bundesbank this month.

Draghi’s candidacy is a done deal in Merkel’s coalition, a government official said in Berlin on condition of anonymity because of the sensitivity of the matter. The government’s main concern is having a candidate in place who will represent German interests and Draghi fits the bill, the official said.

The eight-year term of the ECB’s current president ends in October, creating an opening at the top of the world’s second- most powerful central bank after the U.S. Federal Reserve. While Germany alone cannot dictate who wins the post, its status as Europe’s largest economy and biggest guarantor of aid to peripheral euro countries make it the dominant voice in the appointment.

Debt Crisis Draghi will inherit an ECB very different to the one that Trichet took over in November 2003. As ECB president, Draghi will have to eventually steer the central bank out of a sovereign debt crisis that that forced it to take the unprecedented steps of buying government bonds, a move some council members said jeopardizes its independence.

The ECB is also trying to convince politicians that Greece can’t be allowed to restructure their debts, a move that Executive Board member Lorenzo Bini Smaghi says could see part of the Greek banking system collapse.

At the same time, Draghi will also have to convince investors and voters that he can fulfill the ECB’s primary mandate and get inflation under control. Germany’s biggest- selling Bild newspaper earlier this year raised questions about whether an Italian could be trusted to get a grip on prices given the country’s inflationary history. The newspaper last month backed Draghi’s campaign, saying that Merkel wanted to support “the most German of the remaining candidates.”

Inflation accelerated to 2.7 percent in April, the fastest pace in 2 1/2 years and the ECB raised interest rates in that month for the first time in three years.

MIT-Trained Draghi, a Massachusetts Institute of Technology-trained economist, has worked at the World Bank and Goldman Sachs Group Inc. He is also chairman of the Financial Stability Board, which was established by the Group of 20 nations in 2009 to oversee development of standards to strengthen global regulation.

In a sign Draghi understood the need to meet German skepticism head on, he appealed to the German inflation-fighting mindset, saying on April 13 that monetary policy is still “accommodative” even after the ECB raised its benchmark rate on April 7.

In February, he told newspaper Frankfurter Allgemeine Zeitung that Germany is an example for other nations, calling for tougher sanctions for budget-rule breaches and vowing to ensure price stability.

Bloomberg

 

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