Leave Passports Out of the ECB Race

(Bloomberg Opinion) -- Within the space of little more than a year, the European Central Bank will see two profound changes at its top. At the end of 2018, Daniele Nouy will step down as head of the Supervisory Board, the body in charge of overseeing the euro zone’s largest banks. Then, in the autumn, it’ll be Mario Draghi’s turn to leave the presidency of the ECB.

The central bank has reportedly drafted a short-list of three candidates to replace Ms Nouy. The lucky trio, who will soon appear before the European Parliament, are: Italy’s Andrea Enria, chairman of the European Banking Authority; Sharon Donnery, deputy governor of the Central Bank of Ireland; and Robert Ophele, France’s top financial markets regulator.

The race to replace Draghi is less urgent, but contenders are jostling for position already. They include Jens Weidmann, president of Germany’s Bundesbank, and a couple of Frenchmen: Benoit Coeure of the ECB’s executive board and the Banque de France governor Francois Villeroy de Galhau. Erkki Liikanen, who until recently headed the Finnish central bank, is another runner.

Keen ECB-watchers will be quick to observe a perplexing parallel between the two lists. Germany has criticized many of the radical measures taken by Draghi to end the euro-zone debt crisis and address the ensuing risk of deflation. And yet Weidmann is still apparently in contention. Conversely, Italy has dragged its feet on the adoption of a new EU framework for failing banks, and has opposed the ECB’s tougher stance on how banks should write down bad loans. So why’s an Italian up for the top job at the supervisory board?

There are profound differences, though, between the two candidates – and their relative suitability. The Bundesbank president is a vocal opponent of the “Outright Monetary Transactions” program, which lets the ECB buy unlimited quantities of a country’s short-term sovereign debt when it applies for a rescue. This scheme, which made concrete Draghi’s pledge to do “whatever it takes” to save the euro, has been credited for ending Europe’s sovereign debt crisis. Weidmann has also criticized quantitative easing, which the ECB launched at the start of 2015 to stave off the risk of Japanese-style deflation. His appointment would mark true regime change at the ECB, one that would be hard to justify given Draghi’s successes.

Conversely, Enria is hardly a typical Italian bank supervisor. As head of the EU’s top bank regulator, he has defended the “Bank Recovery and Resolution Directive,” which forces private investors to take a loss before a government can rescue a bank. He’s backed too the ECB policy of getting banks to provision more for non-performing loans. Enria also advocated that the EU should create a bad bank for the existing stock of bad loans – an idea that’s been greeted with skepticism by Nouy. But he’s not been afraid of taking a different line from the Bank of Italy, which has clashed repeatedly with Frankfurt supervisors over bank crises and non-performing loans.

This isn’t to say that Enria should get the job. Donnery and Ophele are well-qualified too. Should the Irish central banker be selected, the supervisory board would remain a welcome exception in the male-dominated upper echelons of the ECB.

But the examples of Enria and Weidmann are a useful reminder of what should matter in getting a top post at the ECB. Too often a person’s nationality is brought up as a reason for why they’d be a good or bad candidate, without thinking about how well the individual would do the job. It’s ideas that count, not your passport.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Ferdinando Giugliano writes columns and editorials 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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