In many ways ECB is an ironical central bank.
The central bank is based in Germany and was designed as a replica of Bundesbank. Why? Because no other central bank had a reputation as the formidable German entity. So, if the European countries wanted to give up their mon policy to ECB, they said it better be like Bundesbank. Otherwise again we have a non-credible central bank creating all sorts of problems. Apart from the design, even the location was chosen as German as one always worried over political influence elsewhere. So much so both the central banks are located in Frankfurt within a 4 km distance.
Now, here comes the twist. Given strong German resemblance, one would impagine it is best to let German head the central bank. But no German has headed the central bank until today. Yes, one German has always been on the board but that is just about it. Earlier the German was a chief economist (Otmar Issing, Jurgen Stark). But even that is not the case today as Sabine Lautenschläger, who is a law person is on the board. Infact Axel Weber head of Bundesbank came close to being ECB chief but resigned from Bundesbank amidst lots of controversy.
So, the chief of ECB was first a Dutch, then a French and currently an Italian. They have kept Germany out as the fear remains that with a German not even little political maneuvering will be possible. With the non-German as a head, one can expect some sympathies in case of a slowdown.
This was tested during the current crisis. Both Weber and Stark did not favor any monetary stimulus by ECB and had runs with the ECB leadership leading to resignations. Post Stark, it became easy for Draghi to take control and convince others for monetary stimulus. However, Bundesbank under the new chief Weidmann continued to oppose the policies.
As Draghi’s term is ending in 2019, the speculations have started early. The Italians and French are again opposed to having Weidmann as President:
In its new edition, Germany’s Der Spiegel magazine reported Friday that Italy and France would object to installing Bundesbank chief Jens Weidmann as head of the European Central Bank after the end of Mario Draghi’s term in 2019.
It said government representatives from both nations had told German Finance Minister Wolfgang Schäuble that they had nothing against a German at the helm of the ECB, “but it must not be Jens Weidmann.”
The report elaborated that southern eurozone nations feared current pragmatic and flexible crisis management measures such as the ECB’s huge bond-buying program as carried out under Draghi would no longer be possible under Weidmann.
While Schäuble said in May he would not take part in any debate about Draghi’s successor, numerous media reports had highlighted his and German Chancellor Angela Merkel’s likely push for Weidmann to become the fourth guardian of the euro currency, after a representative from the Netherlands, France and Italy.
But there may be a whole bunch of contenders for the job of ECB president, among them Bank of France Governor Francois Villeroy de Galhau.
It cannot be taken for granted, though, that the fight for the post will include Jens Weidmann at all. A spokesman for the Bundesbank on Friday quoted him as saying he enjoyed his current job and would certainly stand ready for another term beginning May 2019, should he be asked to do so.
Weidmann has headed the German central bank since 2011.
Even if it is premature speculation, the European leaders will try hard to keep a German central banker heading the Board.
So much so for the ironies…