What’s the biggest financial decision facing Europe in 2011? Easy. The choice of a new president of the European Central Bank.
When Jean-Claude Trichet steps down from the post in October, the leading candidates to succeed him will be Bundesbank President Axel Weber and the governor of the Bank of Italy, Mario Draghi.
Neither is the right man. Weber would be intolerable to the peripheral euro countries, while Draghi might well provoke the Germans into quitting the single currency.
For the leaders of the euro area, there are only three solutions to this fix. They could take the traditional way out of a difficult decision and give the job to an obscure Dutchman, which is what they did when Wim Duisenberg became the first ECB president. They could extend Trichet’s term to steer the euro through an emergency. Or they could choose a wild-card candidate.
Most big European jobs are grand titles without much power. The national leaders, such as German Chancellor Angela Merkel, French President Nicolas Sarkozy and U.K. Prime Minister David Cameron, make the real decisions.
But the ECB president is different. He is the key economic policy maker for the 17 countries sharing the single currency. Within the euro area, the national central banks have little genuine influence left. Along with the Federal Reserve chairman, he is one of the two most important monetary officials in the world. It is a job with real clout.
This year, it is even more important. With both Greece and Ireland bust, it is no exaggeration to say the euro is in mortal danger. Its survival depends on decisions made in the next few years. There is a lot resting on the shoulders of the person installed in the ECB’s headquarters in Frankfurt.
The trouble is, neither of the two leading candidates is suitable. That isn’t because of who they are. Both Weber and Draghi are clever, well-qualified men. Normally, they could do a good job. But not this year. Why? Because of their nationalities.
Draghi has impressed the markets during his spell at the Bank of Italy. But imagine the impact an Italian at the ECB would have on German public opinion, which has already soured regarding the euro. Putting an Italian in charge would confirm all the worst German fears. He would be seen as the candidate of the highly indebted countries. His appointment may convince ordinary Germans that the euro wasn’t for them, prompting the country to quit. Austria and the Netherlands would follow suit.
Bundesbank President Weber would be just as provocative to the peripheral nations. He would be seen as the hard-money, austerity candidate. His appointment could force Portugal or Greece to quit ― with Spain and Italy next in line. If three or four countries were to leave, there wouldn’t be much point in continuing with Europe’s monetary experiment.
So what’s the solution?
There are three possibilities.
One, just do what the European Union usually does when it can’t agree on who should get a big job: Take the obscure-Dutchman option. This time, give it to some little-known figure from one of the minor countries. Austria’s central-bank governor, Ewald Nowotny, has been mentioned as a possibility. So have Finland’s Erkki Liikanen and Belgium’s Guy Quaden. All of them would be safe choices, largely because few people have ever heard of them. Whether they have the high-level experience to do the job is another matter.
Alternatively, extend Trichet’s term, even if it means changing the rules on renewing his eight-year tenure. He’s only 68, by no means an unreasonable age, and has handled the crisis as well as anyone could be expected to. He could be presented as a safe pair of hands to steer the currency through a dangerous period. The only problem would be that it wouldn’t be a long-term solution.
Or, third, how about a wild-card choice?
Who says the ECB has to be run by one of the people in charge of the national central banks? How about French Finance Minister Christine Lagarde? She has already played a crucial role in piecing together the rescue packages for Greece and Ireland. This is going to be a largely political job for the next few years. It is about selling bailout packages and negotiating compromises. She’d be good at that.
Or perhaps Emilio Botin, the chairman of Banco Santander SA? He is probably Europe’s most successful commercial banker, having turned Santander into one of the world’s biggest lenders. He steered it through the credit crunch largely unscathed. He may be from an indebted nation, but his international experience with bank mergers would stand him in good stead at the ECB.
There are arguments to be made for and against any of those solutions. Maybe the wild-card suggestions aren’t serious. But the point is this: The EU should go for anything other than the current candidates. Surely any of the alternatives would be better than a divisive new ECB president who would be deeply unpopular in one half of the continent or the other ― and could easily end up presiding over the currency’s dismemberment.
By Matthew Lynn
Matthew Lynn is a Bloomberg News columnist and the author of “Bust,” a book on the Greek debt crisis. The opinions expressed are his own. ― Ed.
(Bloomberg)
