ECB’s First Irish Board Member Enters Limelight as Economy Wilts

ECB's First Irish Board Member Enters Limelight as Economy Wilts

Piotr Skolimowski

03 Jun 2019, 12:40 PM IST

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Philip Lane is starting his first week as the European Central Bank’s top economist -- and it’s a big one.

The Irishman, the first person from his country to join the ECB’s six-member Executive Board, will immediately be met with a flurry of new data, updated forecasts and a policy meeting at which he’ll present the board’s proposals. It’s a critical moment, with some officials losing confidence in the recovery amid global trade tensions, and investors clamoring for details on upcoming bank loans.

ECB’s First Irish Board Member Enters Limelight as Economy Wilts

If he gets it right, the 49-year-old Harvard PhD will establish his credentials as the institution starts a transition that will also see President Mario Draghi and markets chief Benoit Coeure replaced this year.

“This is a difficult moment for the euro area -- after a couple of years of strong growth, economic activity has disappointed and inflation continues to be stuck at a low level,” said Gian Maria Milesi-Ferretti, deputy research head at the IMF, who has worked with Lane for more than 20 years. “These are not easy waters to navigate, and require the ability to think outside the box. Having a person like Philip who remains open and willing to learn and experiment will be very important.”

Lane brings two decades of academic experience, most recently as a professor at Dublin’s Trinity College from where he was picked in November 2015 to run the Irish central bank.

His public persona will likely stand in stark contrast to his garrulous Belgian predecessor Peter Praet, who provided the economic rationale for the ECB’s negative interest rates and quantitative easing. The two men have spent the past few weeks working closely together as Praet prepared the updated economic projections for the June 6 Governing Council meeting in Vilnius.

The move to Frankfurt for the ECB coincides with a renewed call for a so-called European safe asset that would help shield the region’s financial markets from future crises. Lane has long pushed the idea of pooling euro-area government bonds and distributing in tranches of different risk, and his new role could give him more heft to put it back on the agenda.

“He’ll always be open to new ideas and approaches and is definitely not ideologically hidebound,” said Patrick Honohan, Lane’s predecessor at the Irish central bank. “He’ll be looking for proper solutions and you may have a difficult time labeling him. He’s calm, he doesn’t fluster easily, and this is a plus.”

Lane will get reports this week on economic growth and unemployment as well as a critical reading of inflation. The numbers will come too late to be plugged into the projections, but they will influence investor sentiment over whether the ECB will ever raise interest rates in this economic cycle. Market-based inflation expectations are currently near the lowest level since 2016.

A key debate at Thursday’s meeting is likely to be over the terms of long-term loans to banks that start in September. Some officials want the terms to be generous to provide added economic stimulus, while others say it’s time to start weaning lenders off of central-bank dependence.

Lane has kept a low profile since becoming the sole nominee for the job in February. In his most recent policy-related comments in late February, he warned against overreacting to individual numbers and said the ECB’s current strategy can cope with any sudden deterioration in the outlook. He also expressed confidence that wage pressures will eventually boost price growth.

“He’s got the experience and academic credentials to deal with what is clearly a challenging economic outlook,” said Megan Greene, former chief economist at Manulife Investment Management in Boston and incoming senior fellow at Harvard University. “He’s been preparing for this role for quite some time.”