Draghi’s Successor as ECB President Won’t Be Like Mark Carney
Mario Draghi’s successor as European Central Bank chief is probably going to be someone he already works with.
Choosing from among current policy makers can deliver a qualified president who doesn’t need time to get to know colleagues, or the way they take decisions. But it also restricts the ECB’s talent pool to a cadre dominated by white, male officials who are often products of their respective national administrative classes -- and shuts off an avenue to import fresh thinking.
Defaulting to an insider contrasts with the approach of the U.K., which selected Canada’s Mark Carney to lead the Bank of England, and of Israel, where U.S. citizen Stanley Fischer previously served as governor. Ireland followed suit this week by hiring Gabriel Makhlouf, a former British official advising New Zealand’s government, as its central bank chief.
“Ideally, new appointments in Frankfurt and the ECB board should be outsiders,” said Lex Hoogduin, a professor at the University of Groningen in the Netherlands, a former chief economist at the Dutch central bank. “That’s the natural way to refresh the views and not get bogged down in dogma.”
Only the EU
Such an approach is improbable for the ECB, where the selection process is already limited to European Union nationals. While the official description for candidates isn’t too restrictive, calling for “persons of recognized standing and professional experience in monetary or banking matters,” the bloc’s complex political bargaining, likely to kick off after EU elections in late May, may favor applicants from specific countries who are proximate to the institution.
European Commission President Jean-Claude Juncker provided an illustration of the political issues at stake in an interview with Handelsblatt this week, when asked about the candidacy of Bundesbank President Jens Weidmann.
“Weidmann is a convinced European and an experienced central banker and therefore suitable,” Juncker said. “I don’t share the opinion heard in some parts of southern Europe that a German shouldn’t be allowed to become ECB president.”
All the leading ECB contenders cited by economists to replace Draghi in November have served on the Governing Council. They include the chiefs of central banks in France and Germany -- Weidmann -- the current and former governors of the Bank of Finland, and a member of the ECB’s Executive Board.
Potential successors who could represent a slight deviation from that norm would include European Stability Mechanism head Klaus Regling, who helped design the euro but hasn’t served as a central banker, or an unprecedented female appointment such as Bundesbank Vice President Claudia Buch. But that’s currently as radical as it gets.
Carney’s appointment as the BOE’s first-ever non-British governor raised eyebrows at the time, but the bank had already been a pioneer in attracting external talent for its policy committee. Equally, Ireland’s unprecedented hiring of Makhlouf builds on a recent history of employing outsiders at the central bank, often from overseas, at a level as high as deputy governor.
Carney’s selection has also been a source of subsequent controversy at a time of deep political divisions. Yet even critics would admit that the former Bank of Canada governor brought a different approach to the BOE than his predecessors, with his changes in almost every area of the 325-year-old institution amounting to a revolution. The U.K. Treasury judged the experiment successful enough to be open to repeating it when looking for his successor.
Still, Carney did take time to adapt to the BOE’s committee system and decision processes. That suggests a total newcomer could struggle at the ECB, a larger and politically more complex institution.
“An external person needs time to get up to speed,” said Janwillem Acket, chief economist at Julius Baer in Zurich. “It’s important to have someone who knows the mechanism.”
The convention of picking the president from among governors -- who are employed by and based at their national central bank rather than the Frankfurt-based ECB -- does at least get an quasi-outsider to the institution.
But however much the institution could benefit, there’s no prospect of totally fresh blood. And for Commerzbank economist Peter Dixon, as much as an outsider “sounds like an attractive proposition,” it’s probably impractical for such a sensitive role.
“The problem is that this is a highly politicized appointment,” he said. “It kind of makes sense to have someone who understands how it works rather than parachute someone in.”
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