Skip to main content

gerlach10_Sean GallupGetty Images_ECBsignbuilding Sean Gallup/Getty Images

Who Can Influence the ECB?

Eurozone governments will soon have to fill two open slots on the European Central Bank's Executive Board. Rather than proposing candidates who will forcefully promote national views, they should consider nominees who are likely to be able to influence ECB policy.

ZURICH – Three months after they chose Christine Lagarde to succeed Mario Draghi as president of the European Central Bank, eurozone governments now have other major personnel decisions to make regarding the ECB’s Executive Board. With German board member Sabine Lautenschläger having unexpectedly resigned last month, and her French colleague Benoît Cœuré’s eight-year term ending in December, there are two open slots to be filled.

These positions matter. The six members of the Executive Board, together with the eurozone’s 19 national central-bank governors, form the Governing Council that sets the ECB’s monetary policy. Because the board members all work in Frankfurt, they are in close contact with one another and take the lead in proposing the direction and decisions the council should take.

Eurozone governments have an informal understanding that Germany, France, Italy, and Spain, which together constitute three-quarters of the eurozone economy, can always have a national of their choice on the board. That means the open slots are likely to be filled by a German and an Italian (because Lagarde, like Cœuré, is French, while the departing Draghi is Italian).

That seems like a sensible way to help ensure the ECB’s continued political legitimacy. Unfortunately, there can be no guarantee that large countries always have the best candidates to propose. In fact, two of the most credible contenders to succeed Draghi, the Finns Erkki Liikanen and Olli Rehn, come from a small country. So did the ECB’s first president, the Dutchman Wim Duisenberg.

In considering appointments to the ECB, governments naturally think of candidates who will forcefully support “the national view,” if indeed such a thing exists. The German government will thus probably prefer a hard-money proponent who believes that the central bank’s policy is far too expansionary and that interest rates are too low for individual savers, pension funds, and insurance companies alike. Meanwhile, the Italian government may propose a candidate who thinks the ECB should pursue a full-blown asset-purchase program, cut its key deposit rate further, and not put too much pressure on banks to sort out their stocks of non-performing loans.

But such candidates are unlikely to be very influential in the ECB’s Governing Council – as the example of Bundesbank President Jens Weidmann illustrates. Weidmann undoubtedly has all the necessary skills to be a successful ECB president: he has an impressive grasp of monetary theory, plenty of policy experience, and is a clear and engaging public speaker.

Subscribe now
ps subscription image no tote bag no discount

Subscribe now

Subscribe today and get a free copy of our new magazine, Sustainability Comes of Age, along with unlimited access to OnPoint, the Big Picture, the entire PS archive of more than 14,000 commentaries, and our annual magazine, for less than $2 a week.

SUBSCRIBE

Unfortunately, he appears to have pushed the German view (or, perhaps more accurately, that of many German commentators) too strongly. Although Weidmann’s inflexible stance may have strengthened his profile in Germany as a firm supporter of monetary rectitude, it rubbed too many other council members and eurozone governments the wrong way. His candidacy to succeed Draghi thus failed to receive broad support.

For the same reason, Weidmann has had little impact on ECB policy, which is effectively determined by where the council’s center of gravity is on any particular issue. Council members who are too far away from that center, even if they are in tune with national sentiment, are disregarded and lose influence.

The experience of former US Senator Barry Goldwater is perhaps instructive in this regard. Goldwater held uncompromisingly conservative views on many issues and, in accepting the 1964 Republican presidential nomination, famously said that “extremism in the defense of liberty is no vice,” and that “moderation in the pursuit of justice is no virtue.” Although this was a good sound bite, and although his candidacy arguably set the stage for the nomination of Ronald Reagan a generation later, Goldwater lost to President Lyndon Johnson in a landslide.

Thus, rather than proposing Executive Board candidates who will forcefully promote national views, the German and Italian governments should instead consider nominees who are likely to be able to influence ECB policy. That calls for candidates who do not have predictable and rigid opinions on the issues that the Governing Council will face in the near future, such as whether the ECB should prolong its asset purchases and/or cut interest rates further.

Members of the ECB’s Executive Board should consider each policy issue on its merits with an open mind, and be willing and able to help forge broad agreements in the Governing Council in support of policy decisions. In many ways, these attributes are precisely what French President Emmanuel Macron had in mind when he proposed Lagarde to succeed Draghi.

https://prosyn.org/Cyit58d;
  1. sierakowski47_Carsten KoallGetty Images_kyczynskiangryshadow Carsten Koall/Getty Images

    The Survival of Democracy in Central and Eastern Europe

    Sławomir Sierakowski

    Following parliamentary elections in Poland and local elections in Hungary, populist autocrats in both countries remain in power, where they will continue to undermine democratic institutions. Even so, relative victories for opposition forces in both countries show that the region's "illiberal democrats" are not unbeatable.

    0
  2. tharoor133_Drew AngererGetty Images_modihandsout Drew Angerer/Getty Images

    India’s Modi Slowdown

    Shashi Tharoor

    After Prime Minister Narendra Modi was overwhelmingly re-elected in May with an even larger majority for his party, many economists expected him to take bold steps to remove the many bottlenecks that have discouraged investors. But no one should believe the Modi government has the ability or the will to fix what it broke.

    3
  3. drew47_Drew AngererGetty Images_trumpgiulianasmiling Drew Angerer/Getty Images

    Will Trump Be Removed from Office?

    Elizabeth Drew

    Assuming the US House of Representatives votes to impeach President Donald Trump, the fact remains that there are far fewer votes in the Senate than will be needed to convict him and remove him from office. But the willingness of Congress – including the Senate – to continue tolerating his dangerous conduct is now truly in question.

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated Cookie policy, Privacy policy and Terms & Conditions