The Strategist

Will new ECB Chief come from Germany?

04/09/2019 - 15:23

There is a looming possibility of a deal on the candidacy of the main European banker, which will most likely be concluded by the two leading economies of Europe, Germany and France. For the first time in the history of the main European bank, a German financier may head the main financial institution of Europe. President of the German Federal Bank (Bundesbank, the main bank of Germany), 50-year-old Jens Weidmann, is rumored to occupy this position. Former advisor to Chancellor Merkel (2006–11), he made a dizzying career: he became the youngest President in the history of Bundesbank at 50, and in the fall may move from Berlin to Frankfurt, where the ECB headquarters are located.

The German economy is the most powerful in Europe, the headquarters of the ECB is located in a German city, and the bank itself was created in the style and likeness of Bundesbank. Yet, not a single German has yet headed the main bank of Europe. However, there is nearly one hundred percent certainty that this strange tradition will soon be broken. Chances of the German candidate are higher than ever, because Paris is ready to support Berlin. The French themselves have long dreamed of putting their financier at the head of the ECB, but in recent months, it seems, the French government has changed its goal and now wants the Frenchman to head the European Commission. So the two main European economies have apparently planned an exchange.

Germany considers the ECB an even more significant institution than the EC. Therefore, when Germans noted the first signs of the course change in Paris, they quickly reoriented themselves and offered an exchange.

The main condition for Head of the ECB in Berlin is considered a commitment to a conservative policy. Weidmann, like most German financiers, is 100% fit here. Besides, he is not only young, but also popular - at least in Germany, where he is praised for good performance of Germany in the years of the euro zone crisis. Moreover, if unforeseen difficulties arise, then Berlin has for another candidate, not even necessarily German one. The main thing is that the person should come from a country where they conduct tight fiscal policies. For example, Merkel is ready to consider Olli Rehn or Erkki Liikanen, the former and current heads of the Bank of Finland.

An obstacle in the way of Weidman may be fears of investors and markets. They are afraid that his arrival will radically change the main European bank’s policy. You do not need to see future to forecast policy of Jens Weidman as Chairman of the ECB. He will undoubtedly abandon the more than a decade-long policy of low rates, which reduced profitability of low-risk financial products, in which most Germans prefer to keep their savings. As a result, interest rates on government bonds in European countries and especially in Southern Europe can rise.

The fight for a place of Head of the ECB is taking place in difficult times for Europe, when development of the eurozone economy slowed down, and the main European economy, the German one, could even slip into a technical recession.

Jens Weidman remains a supporter of a conservative fiscal policy, but lately he has somewhat softened his rhetoric, although he continues to insist on a return to a more rigid ECB policy.