Germany's Peace Offering to the European Central Bank
(Bloomberg Opinion) -- Some good news for the European Central Bank. The German government has nominated Isabel Schnabel, an accomplished economist at the University of Bonn, to replace her compatriot Sabine Lautenschlaeger on the ECB’s executive board. Lautenschlaeger is quitting after the central bank’s decision to restart large-scale bond purchases (known as quantitative easing).
It’s an anachronism that Germany, France and Italy always get to choose one of the top positions at the ECB. But if this appointment must be made by Berlin, Schnabel is a fine choice.
The ECB’s senior team has three big problems: its increasingly bitter divisions over QE, a shortage of trained economists in the top jobs and a lack of female leaders. Hiring Schnabel would address each of these issues.
Her pragmatism and ability to see both sides of the monetary argument would ease some of the tension that’s taken hold after several members of the ECB’s governing council — which includes the central bank chiefs of all euro zone members — voted against the decision by departing president Mario Draghi to restart asset purchases.
The relationship between the ECB and Germany is especially fraught. Jens Weidmann, president of the Bundesbank, has opposed many of Draghi’s boldest policy moves, including his 2012 pledge to do “whatever it takes” to preserve the euro. Immediately after last month’s announcement on new bond-buying, Weidmann distanced himself from the decision. Lautenschlaeger resigned weeks afterwards, having also voiced her dissent.
Schnabel is a hawk too, with her own doubts about the need for more QE. She’s an advocate of stringent bank supervision, supporting the “bail-in” mechanism that forces losses on bondholders when lenders fail. She opposed the proposed merger of Germany’s Deutsche Bank AG and Commerzbank AG because the resulting bank would have been too big to fail.
Yet she has defended the ECB in Germany. In September Schnabel tweeted that her country “shouldn’t use the ECB as a scapegoat,” comparing it to how the U.K. berated the EU before the Brexit referendum.
She also believes Draghi’s “whatever it takes” policy, which promises to support any euro area country in trouble, is crucial. One can expect her to fight for tighter monetary policy, but in a consensus-building manner. She could be a powerful ally to Christine Lagarde, who replaces Draghi at the end of October, especially if she managed to convince a skeptical German public that the ECB was following the right course.
Schnabel’s recruitment would also help restore the depleted ranks of trained economists among the ECB leadership. Lagarde has had a distinguished career as France’s finance minister and the International Monetary Fund’s managing director, but she’s not an economist. Luis de Guindos, her deputy, has spent much of his recent professional life as a banker and politician.
The ECB will have lost three first-rate economic thinkers by the end of this year, including Benoit Coeure (a member of the executive board), Peter Praet (the central bank’s former chief economist) and Draghi himself. The appointment of two seasoned economists, Philip Lane to replace Praet and Italy’s Fabio Panetta to the executive board, isn’t enough.
Finally, the ECB needs more women in senior posts. The European Parliament has often scolded the Frankfurt institution for its lack of gender balance. Unless Lautenschlaeger’s replacement is a woman too, Lagarde will be the lone female in the top ranks. Other recent appointments to the executive board were made without putting any women on the candidate lists.
Schnabel is eminently well-qualified. She has written extensively on banks and the financial system, has been a member of the German Council of Economic Experts and has advised the Bundesbank and Germany’s bank regulator BaFin. In 2018 she was part of a group of German and French economists that put together a thoughtful proposal to reform the euro zone.
It’s a reassuring sign that Berlin has put forward her name. This might be an attempt to de-escalate the conflict with the central bank at a time of transition and vulnerability in Europe. It may even let Germany increase its influence. Joerg Asmussen, Lautenschlaeger’s predecessor on the ECB board, supported many Draghi policies and played a key role until his resignation in 2013. Schnabel would hope to do similar.
To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Ferdinando Giugliano writes columns on European economics for Bloomberg Opinion. He is also an economics columnist for La Repubblica and was a member of the editorial board of the Financial Times.
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