The Race for Top ECB Job Is a Proxy Battle Between Merkel and Macron

(Bloomberg Businessweek) -- Ever since the European Central Bank was established in 1998, the appointment of its president has been dictated by politics. It’s a fight that encompasses the historical rivalry between France and Germany, and it’s as much a struggle for influence and power as it is about a vision for ­monetary policy.

The 2019 version of the race is proving to be no different. The new ECB chief won’t take office until current President Mario Draghi steps down in October. But German Chancellor Angela Merkel, who’s preparing to leave office and has an eye on her legacy after 14 years as the European Union’s most powerful figure, is already squaring off against French President Emmanuel Macron, who wants to reform the continent in his own image. And it gets more complicated. For the first time, the ECB job is up for grabs at the same time as the other top EU positions: the president of the European Commission, the EU’s executive arm, and the president of the European Council, who chairs summits of leaders. The selection of a candidate for any one of these jobs wouldn’t necessarily affect decisions on the others, yet EU officials acknowledge that government chiefs—the ultimate arbiters of who gets what—are discussing them as a package.

By law, the EU must divide its top jobs along geographical lines. At the most basic level, this means giving as many jobs to the German-led group of (mainly) northern European countries that promote fiscal responsibility as to southern nations, arguably including France, who are more dovish. That means there’s a lot of horse-trading going on. “The challenges that the euro zone is going to face over the next few years—the runup to the next recession, possibly a crisis in Italy—means that it really should be the best man or woman for the job,” says Christian Odendahl, chief economist of the Centre for European Reform in Berlin. “But the job is more political than ever, so I’m not sure that person is in the running.”
 

The bundling up of EU jobs means, for instance, that Jens Weidmann, the hawkish Bundesbank president who many EU officials say is one of the front-runners to replace Draghi, is unlikely to get the job should Merkel push for a German—or even a non-German whom Berlin supports—to become head of the European Commission. Unluckily for Weidmann, Manfred Weber, a politician allied to Merkel’s own Christian Democratic Union, is a favorite for the commission job. The focus for the ECB would then point toward François Villeroy de Galhau, Governor of the Banque de France, or French ECB Executive Board member Benoit Coeure.

But here things get even more tangled: Weber is seen as something of a lightweight, and it became clear at a summit of EU leaders in May that he doesn’t have the overwhelming support of many of them, officials say. His downfall could lead to a Macron-backed figure getting the commission post instead—perhaps Michel Barnier, the EU’s chief Brexit coordinator, who denies he wants it but is hawking his credentials around European capitals, or Denmark’s Margrethe Vestager, the bloc’s high-profile antitrust czar who belongs to Macron’s centrist European alliance. Giving it to either of these contenders would shift attention for the ECB role back to Weidmann and create a whole new set of if-then conditions around the leadership of the European Council.

Draghi took over the ECB in November 2011 at the height of the euro area’s debt crisis, when the very existence of the currency bloc was under threat. He would do “whatever it takes” to keep the euro intact, he said in 2012, following up with the creation of a radical tool now heralded as ­having prevented the euro from imploding, and then expansionary monetary policy to stave off deflation. Some of the candidates to replace him think those measures need to keep going for a bit longer, or even be stepped up, while others say it’s time to start putting away the crisis tools. Despite its status as the euro area’s largest economy, Germany has never had an ECB president. That counts in Weidmann’s favor. “If the Germans really want it, and they want to go all out to get it, then they probably will,” says Tim Jones, an analyst at policy consultants Medley Global Advisors in London. “But the question is, do the Germans really want it?”

EU officials with knowledge of the discussions over the appointment say they’re not convinced. Although the German government makes the right noises in public, behind the scenes its diplomats are a lot less insistent. In private meetings they’ve talked up Coeure’s chances, which is either a ­double bluff to confuse the French or a sign that Merkel has other priorities. Those same EU officials aren’t convinced Macron wants the ECB job either, believing instead that securing the top spot on the commission will put him in a better position to start remaking EU policies, such as by persuading ­countries to pool resources and sovereignty more than they do now.

Germany has always preferred to lead from the shadows by placing its civil servants in influential positions rather than by having its people in the spotlight. That’s why Weidmann wouldn’t be too difficult for Merkel to sacrifice, officials say, particularly if the alternative is France driving a hard bargain in other areas of EU policy, such as the plan to give the euro area a centralized pot of money, which could be used to fight future ­financial crises, or rules limiting national debt and deficits. Germany may even propose an ECB candidate who isn’t Weidmann. One name ­mentioned is Klaus Regling, head of the euro zone’s bailout fund, who has European policy experience but lacks Weidmann’s track record of opposing ECB stimulus.

Smaller EU governments (that is, not Germany or France) have begun to express frustration in Brussels at being kept out of the picture, officials say. The non-German, non-French candidates that Berlin and Paris might be able to agree on are mainly Finns—former Finnish central bank Governor Erkki Liikanen and his successor, Olli Rehn, best known for being the EU’s economy commissioner at the height of the euro area crisis. There’s also one Dutchman in the mix: Klaas Knot, head of his country’s central bank. For all Europe’s pledges of a push for gender equality, none of the likely candidates is a woman.

Ultimately, the ECB decision will come down to which leader is prepared to sacrifice his or her candidate. A summit of leaders is scheduled for June 20 and 21, but EU officials warn that a solution may be some way off. There’s one wild card: What will Merkel do after she steps down as chancellor? Despite her denials, she may make an 11th-hour bid to become European Council president. If she does, Germany probably won’t have an ECB chief. But it might be quite content.

To contact the editor responsible for this story: Jillian Goodman at jgoodman74@bloomberg.net

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