Politics of selecting ECB president

It is great fun to be reading eurointelligence daily editions these days. It usually has one news item on politics of selecting ECB’s next Vice – President and President. VP’s terms gets over in July 2010 and President’s in October 2010.

On the same website, Francesco Giavazzi of Bocconi University has a nice article behind the drama titled nicely as How not to select the ECB President.

Once again the procedure the Eurogroup is following in designating new members of the Governing Council of the European Central Bank is unlikely to select the candidates best suited for the job. This time, however, the damage could be more serious: on February 15 the Eurogroup—because of the way it decides–will de facto select two candidates, the vice-president and the President.

Deciding on the new President so long ahead of time (the formal decision will only be taken by the European Heads of State in the Spring of 2011) is clearly against the Treaty. This, however, is what will happen if the Eurogroup accepts to follow the Brussels practice of assigning jobs based a the size and geography of countries: one from a big one, the other from a small one, one from the North, one from the South. The only difference this time is that gender will not be a parameter in the decision—it has in the past. This is why, on February 15, the vote on the new vice-President might become a proxy vote for the new President. If the vice President will come from a southern European small country the President – some will contend – should come from a large country in the North—guess which. If instead he will be a national of, say, the Benelux, the President should come from a large country in the South.

🙂 This is just typical Europe for you.

He then points what the ECB treaty says:

Let us remind ourselves what the European Treaties say (Protocol 18 on the Statute of the European System of Central Banks and of the ECB, article 11.2): “The President and the vice President, and the other members of the Executive Board, shall be appointed from among persons of recognized standing and professional experience in monetary and banking matters.” No mention is made of nationality.

He points to 4 questions that Euro area  politicians should be looking at:

Rather than working around a geographical map of the Euro area these the four questions that should inform its decision:

1) modern monetary policy is about effective communication. Communicating is particularly difficult in the Euro area, as it requires a President able to reach out to over 300 million citizens, recognizing their diverse cultures and without moving markets. Who could best match the talent of Jean Claude Trichet at doing this?

2) the crisis has put a premium on financial experience, both direct experience in financial markets and institutional experience in designing financial regulation. Which candidate comes on top on financial market experience?

3) one of the President’s most important tasks is steering the Governing Council, a group that by now is very large and risks becoming ineffective. Who could match the talent of Jean Claude Trichet?

4) if the Eurogroup was worried about the candidates independence, not only from domestic political pressure but also from the pressure that some national ailing banking systems may put to unduly prolonge central banking support, which personality has proved more independent? With an important, and still very weak, fraction of the German banking industry controlled by local politicians, would it be wise to select a President who is a German national?

Nicely said but it is just too difficult to ignore politics and nationality issues while selecting for ECB. They will continue till the final decision is made.