ECB Is Down One Deflation-Fighting Revolutionary as Praet Leaves

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When Peter Praet makes way for Philip Lane at the European Central Bank on Friday, the handover will mark an important shift in Europe’s economic landscape.

The Belgian is wrapping up his eight-year term as an Executive Board member, much of which was spent masterminding the massive stimulus that steered the euro area away from deflation. His track record highlights how for all the current focus on the next round of top European Union political posts, sometimes the less visible roles carry as much weight.

It also means the 70-year-old bequeaths Lane, a generation younger at 49, a vastly expanded toolbox at a time when the regional economy is showing renewed signs of weakness. Praet’s final task will be to give his Irish successor updated forecasts that will form the basis of Lane’s presentation for the June 6 policy meeting.

Yet Praet twice failed to be appointed to the board and was a surprise choice as chief economist when he finally got there. Here are some of the highlights of his ECB career.

Patient and Persistent

After losing out in the political negotiations for a board post in 2004 and the vice presidency in 2010, Praet finally succeeded in June 2011 -- and in doing so rendered the ECB’s Governing Council an all-male body for the first time. His predecessor Gertrude Tumpel-Gugerell was the only woman on the 23-member panel of board members and national central bank heads.

Despite an economics PhD from Brussels University, it seemed unlikely he’d get the powerful economics and monetary portfolio, which involves writing the proposals for the Governing Council, because that had always been held by a German.

“I remember one day, somewhere in December, Mario Draghi told me ‘you take economics.’ I didn’t expect it when I came to the ECB ... I thought I might have a quieter life than I did before.”
-- Praet in Frankfurt, May 6, 2019

The German finance ministry pushed for then-board member Joerg Asmussen to take over the role, but Draghi was new as president and no hostage to tradition.

“Draghi’s most important institutional decision was probably to give the role of chief economist to Peter Praet,” said Carsten Brzeski, chief economist at ING Germany. “He has been the first non-dogmatic chief economist of the ECB.”

Presidential Ties

Praet proved to be possibly Draghi’s most like-minded colleague on policy. At his farewell dinner this month, he recalled the president telling him the two understood each other so well that they didn’t need to speak.

Draghi said that while other people in his position might have opted to present an array of policy recommendations, Praet would give “often an excruciatingly exhaustive” presentation on the economy and a single clear proposal.

“Anyone who’s closely worked with Peter can attest to his intellectual curiosity. He reads voluminously, arriving at 6 a.m. every morning to sift through piles of notes and briefings, keeps abreast of new research, and always relishes new signs and information.”
-- Draghi in Frankfurt, May 22, 2019

Fighting Dove

That preparation was especially called for at the ECB’s January 2015 meeting. That was when he convinced the Governing Council of the need to launch a bond-buying stimulus program, unprecedented in its scope in the euro area, that would balloon to 2.6 trillion euros ($2.9 trillion) before it was halted at the end of last year.

Warning that inflation might stay “too low for too long” -- and in the face of opposition from some colleagues who preferred to wait and see -- Praet proposed starting asset purchases at 50 billion euros a month. The council settled on 60 billion euros.

Later that year, he said the economy was being constrained by “seeping pessimism.” Shortly afterward the Governing Council cut its key interest rate to minus 0.4%, and raised asset purchases to 80 billion euros a month.

Rational Exuberance

Praet’s style for public speeches is best described as effervescent, rarely staying on-script and sometimes jumping between his four languages.

He’s not always easy to follow. At a 2012 conference, he made an offhand remark that some euro-area countries were “very close” to bank runs. Reporters knew something wasn’t right and held off from publishing the comments until they were able to verify whether he misspoke. He did -- he was actually speaking about his past experiences in Belgium.

“I usually can’t read a speech ... I must be very grateful to a number of people sitting here, because you always -- I don’t know exactly the reason -- but you always protected me in a way.”
-- Praet at his farewell colloquium in Frankfurt, May 22, 2019

Praet hasn’t said publicly what he intends to do next, though some economists have urged him to take a leaf out of former Vice President Vitor Constancio’s book -- start a Twitter account.

--With assistance from Jana Randow, Piotr Skolimowski and Alessandro Speciale.

To contact the reporter on this story: Carolynn Look in Frankfurt at clook4@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Fergal O'Brien

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