The Best Candidate to Replace Mario Draghi

(Bloomberg Opinion) -- At the end of October, Mario Draghi will step down as president of the European Central Bank. The gun has been fired on the race to replace him, with Europe’s leaders debating the merits of candidates ranging from the hawkish Bundesbank president Jens Weidmann to Olli Rehn, the more dovish governor of the Bank of Finland.

One person, though, has failed to appear in the list of potential successors despite his stellar qualifications: Olivier Blanchard. The Frenchman is a fellow at the Peterson Institute for International Economics and former chief economist at the International Monetary Fund. He’d certainly have what it takes to succeed Draghi.

As one of the world’s most highly regarded macroeconomists, Blanchard possesses the intellectual rigor and creativity needed to steer the ECB at a difficult juncture. The central bank is struggling to hit its inflation target of below but close to 2 percent, while inflation expectations have fallen even lower than when the ECB launched its program of quantitative easing. Skepticism is rife about the central bank’s ability to provide effective stimulus, as interest rates are already ultra-low, or even negative, and QE may be less useful than in the past. Were the euro zone to enter a new crisis, a macroeconomic brain such as Blanchard’s would be sorely needed.

He’d also provide continuity. There are legitimate concerns that the next ECB president might row back on some of Draghi’s key policies, including the pledge to buy unlimited quantities of short-term bonds from countries in crisis (provided they apply for a rescue program). Blanchard strongly supported the ECB’s effort to end the euro zone sovereign debt crisis and rescue the currency union from deflation.

Of course, it’s unclear whether he’d posses the political skills that allowed Draghi to introduce his unorthodox policies despite Berlin’s initial doubts. Yet his seven-year tenure at the IMF gave him plenty of experience in mediating the sensitivities of different national stakeholders.

Plus he’s been vocal in the debate on reforming the euro zone. For example, he wants to change the EU’s fiscal rules, which he believes are no longer fit for purpose. Here again he could continue Draghi’s work in pushing for reform, even though not all of the current ECB chief’s calls, including creating a euro zone budget, have been heeded. 

There are reasons why politicians may prefer someone else. Blanchard has never headed a central bank, which is a usual prerequisite for running the ECB. Some may find his views on fiscal policy too lax. In January, in an address to the American Economic Association, he argued that in an era of low interest rates, public debt may be less of a problem than many think. Finally, there are several other good candidates, especially Benoit Coeure, an ECB executive board member whose nomination may however face legal hurdles.

But as they mull how to fill Draghi’s shoes, the EU’s leaders would be foolish not to consider Blanchard. On Monday night, he’s scheduled to give a speech during dinner at the ECB’s yearly central banking shindig in Portugal. The euro zone could do a lot worse than having him as next year’s host.

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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