Politics key to deciding who gets the top jobs at the ECB
The race for the ECB vice-presidency is a clash between Frankfurt and Brussels
Spain’s Economy Minister Luis de Guindos addresses a recent news conference. He is opposing Ireland’s Philip Lane for the job of ECB vice-presdient
The nomination of Governor Philip Lane to contest the post as vice-president of the European Central Bank was a welcome one. Perhaps informed by the Brexit tour of European capitals, the Irish government is quite rightly looking to get our people in key positions as Europe enters an Emmanuel Macron inspired phase of more closer integration.
Traditionally, Brussels has been even more “Yes Minister” than Whitehall, with the agenda set behind the scenes by names not very well known to the public at large. With Catherine Day and David O´Sullivan as senior officials in the European Commission, Ireland had people sensitive to Irish interests.
Now however with the expansion of the European Union and the introduction of qualified majority voting (QMV) a quiet word no longer suffices. Add in the more authoritarian tendencies of some of the EU´s newer members and it is increasingly clear that the most visible posts will be those with the greatest political clout.
Luis de Guindos
Lane’s opponent for the €334,080 position is Spain’s current minister for Economy, Industry & Competition and we will know on Monday who has won, with the Spaniard reported as favourite and early declarations of support falling in his favour. Fifty eight year old Luis de Guindos is a quintessential Davos man, the guy everyone calls when they want to speak to Spain. He is unusual in Spanish political life for how well he mixes in international circles and also for having spent time working in the private sector. Prime Minister Rajoy brought him into his cabinet in 2011 with an eye on the looming banking bailout. Six years later, with Spain’s sovereign credit rating once again at A and attention almost totally on events in Catalonia, de Guindos says it’s job done and the perfect time for him to go.
Two factors have complicated this. First the notoriously cautious Mariano Rajoy wants to avoid a cabinet reshuffle and word in Madrid is that he would not at all be disappointed if Philip Lane wins. Secondly, the Socialist party led by Pedro Sánchez (who operate in a confidence-and-supply agreement with the government) refused to support the nomination of de Guindos. His argument, that Spain should nominate a female candidate, was widely seen as payback for the failure of Rajoy to support former finance minister Elena Salgado for a seat on the ECB in 2012.
For some time now, there has been alarm in Madrid at the loss of Spain’s influence on the international stage. In 2015, de Guindos failed to defeat Jeroen Dijsselbloem to head the Eurogroup of Finance Ministers. In the past, Javier Solana was secretary general of NATO, Federico Mayor Zaragoza, the director general of UNESCO and Rodrigo Rato managing director of the IMF. These days though, it is Portugal who are securing the world’s top political posts. Antònio Guterres is now the secretary general of the United Nations and Mário Centeno is President of the Eurogroup. Previously, José Manuel Durão Barroso, led the European Commission for 10 years.
The reasons for Portugal’s success on the international stage will be familiar to everyone in Ireland. Lacking economic power, the Portuguese turned to diplomacy, cultivating a message as a friendly, pacifist nation where everyone is made welcome. They have the Web Summit, the Eurovision Song Contest and the first person of Indian origin to lead a European country. Even Madonna has moved to live in Lisbon, as her 11-year-old Malawi-born son is training with Benfica.
Brussels or Frankfurt?
Eurogroup ministers will vote on Monday – February 19th – to decide on a candidate for ECB vice-president. Both candidates have emerged this week from the European Parliament’s Committee on Economic and Monetary Affairs (ECON) closed door hearings with what they wanted. In a statement issued afterwards, the chair of the committee Roberto Gualtieri described Lane as “the more convincing” of the two. Crucially though, they did not expressly oppose the appointment of de Guindos. Memories go back to 2012 when UK MEP Sharon Bowles, then the chair of ECON, opposed the appointment of Yves Mersch and delayed the appointment., She argued insufficient effort had been made to find suitable women candidates for the ECB post. Five years later and nothing appears to have changed.
Opponents of de Guindos worry that his appointment would be a further erosion of the ECB’s independence from euro zone governments. The argue that only candidates with the technocratic credentials of Philip Lane should even be considered. Central banking is now a highly technical field requiring a thorough knowledge of negative interest rates, quantitative easing and macro-prudential policy. It is not a gilded retirement home for political fixers.
Spain’s tactic has been to tout the support of Germany and to add that Philip Lane would be ideal for the post of ECB chief economist falling due in 2019. France though is using the contest to test the waters for the big prize, the race to succeed ECB President Mario Draghi when his term expires in 2019. France is looking for a continuity of Draghi’s monetary policy through the current Banque de France governor François Villeroy de Galhau, or even the IMF’s Christine Lagarde. Germany, never keen to show its teeth internationally, believes the time has come to put their man at the top and to put a halt to the era of cheap money.
In describing the euro zone chaos in 2011 on BBC Hardtalk, US hedge fund manager Kyle Bass joked what do you expect when “they have a German pope and an Italian central banker!” If Jorge Mario Bergoglio and Jens Weidmann keep their health, will 2019 be the year in which something of the natural order is restored?
Joe Haslam is a Professor at the IE Business School in Madrid.