The ECB Policy Most Disliked in Germany Is Now Run by a German

(Bloomberg) -- Christine Lagarde has a plan for rebutting German criticism of the bond-buying program she inherited as European Central Bank president: Put a German in charge of it.

Lagarde has handed one of the ECB’s highest-profile roles to a German who has taken a stand against undue sniping at the institution’s policies. Isabel Schnabel, a University of Bonn economics professor and government adviser who joined the Executive Board on Jan. 1, is now responsible for market operations.

She’ll oversee the 2.6 trillion-euro ($2.9 trillion) quantitative easing program that was controversially revived last year only months after it had been capped. QE still awaits a judgment in Germany’s top court over accusations that it illegally crosses the line between monetary and fiscal policy.

The portfolio, which will also include heading up ECB research, is a nod to Schnabel’s standing as an economist. Her predecessor, Sabine Lautenschlaeger, was a lawyer by training who mostly held a senior role in bank supervision with less influence on monetary policy.

But it’s also a recognition by Lagarde that Schnabel -- the only other woman on the six-person board -- is well-placed to counter the mounting German-led hostility to the ECB’s easy-money policies.

‘Good Place’

“Lagarde clearly signals that she sees Schnabel at the very center of the ECB’s core business, monetary policy,” said Lucas Guttenberg, deputy director of the Jacques Delors Institute in Berlin. “This puts Schnabel in a good place to explain the ECB’s policy in Germany and elsewhere from a position of authority.”

The economist’s credentials, from a German perspective, include a healthy dose of skepticism. She has already said that if she’d been a policy maker when the decision to resume QE was taken last September, she’d have argued for waiting a bit longer.

That meeting, the penultimate one for Mario Draghi before handing over the presidency to Lagarde, was one of his most divisive ever. Around a third of the 25-member Governing Council opposed restarting QE, including the two Germans on the panel -- Lautenschlaeger and Bundesbank President Jens Weidmann. The ECB also cut interest rates to a record-low minus 0.5%.

Lautenschlaeger resigned shortly afterward, without giving a detailed explanation why. Germany’s nomination of Schnabel -- a rare decision to pick someone from outside the Bundesbank -- to replace her was unopposed by other member states.

The 48-year-old quickly made clear that she’ll fight back against unwarranted attacks. A frequent user of Twitter, she tweeted her dismay over a cover of Der Spiegel magazine that suggested savers are being pushed into poverty by monetary policy.

In an interview in Germany’s Boersen-Zeitung published this week, she said “aggressive and non-fact-based criticism” leads to an erosion of trust in the ECB and the euro. In an informal Twitter poll on which important German word Lagarde should learn first, Schnabel suggested “Vertrauen” -- “trust.”

The board shakeup also gave a key portfolio to Fabio Panetta, who joined at the same time as Schnabel. He’ll take on international and European relations, sending him to events such as global meetings of finance ministers and central bankers to explain the ECB’s policies, as well as payment systems and banknotes.

Panetta spent 35 years at the Bank of Italy, in roles that put him in Group of 7 and Group of 20 meetings, and on the board of directors of the Bank for International Settlements. At these outings, he got to know finance ministers and top international officials, and participated in negotiations on key reforms such as the post-crisis banking rules.

The new board members have big shoes to fill. Both the international relations and market operations roles were previously held by one person: France’s Benoit Coeure, whose eight-year term ended on Dec. 31. He’s moving to the BIS as head of its new “Innovation Hub” to foster collaboration among central banks on innovative financial technology.

--With assistance from Alessandro Speciale.

To contact the reporter on this story: Paul Gordon in Frankfurt at pgordon6@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Catherine Bosley, Brian Swint

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