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Wednesday, 27 April 2011

Running for President… of the ECB: is Mario Draghi a ‘no-brainer’ as next president of the ECB? Or will Germany vote for a dark horse?!

In October 2011 the term of Jean-Claude Trichet as president of the European Central Bank is finished. This means that somewhere in June or July a new president of the ECB will be elected by the leaders of the European Union.

Over the last months a diverse gathering of (would-be) candidates came into the limelight. However, there was one clear favorite: Axel Weber, the president of the Bundesbank (the German national bank).

He was the German candidate and as Germany is the most influencial member of the EU and the mainstay of the Eurozone, he was THE candidate. But in February Axel Weber stated that he would resign as president of the Bundesbank on April 30, 2011 for ‘personal’ reasons and he would also withdraw from the presidential elections.

Since then some new names were added to the stack and initially there seemed to be no clear favorite. However, one name got the upper hand in the media: Mario Draghi, the current governor of the Banco d’Italia and a former employee of Goldman Sachs.

If you would go to your local bookie and put money on the person that has the best chance of becoming the next president, these would be your odds (on April 27)

Odds are obtained from the three mentioned bookmakers

That Mario Draghi is now such a clear favorite is due to:
·         An active lobby campaign of the Italian Government
·         The fact that he would be the first Italian in this position.
·         The fact that he has not an outlier opinion on the monetary policy, but is regarded as a centrist.
·         His public experience: he is the current chairman of the Financial Stability Board,in charge of coordinating global financial regulation
·         His private experience: he worked with Goldman Sachs. The bank that is Royal Warrant of US Finance Ministers and one of the most influential banks on earth.

Since yesterday the chances of Mario Draghi to become president have increased dramatically. After some shadowy horse trading between French president Nicolas Sarkozy and Italian Prime-minister Silvio Berlusconi, candidate-president Mario Draghi received the official support from the French government. This means in real terms that if Angela Merkel of Germany doesn’t ‘veto’  Draghi, he will become the next president of the ECB.

That the French support came at a price, is very clear: in practice this will probably mean that Italy will stop handing over Schengen-visa to Tunisian and other North-African refugees and that they will try to blast Berlusconi’s old ‘friend’ Moammar al-Kadhaffi to the past. Having friends is always good, but sometimes you have to get rid of some of your friends if they don’t fit in your strategy anymore. And Berlusconi is like an old fox: when he preacheth, then beware your geese.

Obtaining influence is never for free, but I guess that for Italy, governor Mario Draghi as ECB President will be worth every penny. I am afraid that Draghi will not keep the tightest monetary policy when Italy really comes into financial trouble: this is of course my personal opinion. And according to some respected people (Professor Mike ‘Mish’ Shedlock: this might be rather sooner than later.

Is it then already over-and-done with? I would not put MY money on it already:

·         First, the European Union is a very political arena were the dead-cert is often not the winner and where having no enemies is sometimes better than having a lot of friends

·         Second, it might be that Angela Merkel WILL veto Draghi, afraid as she might be of loose monetary policy where Germany foots the bill in the end

·         Third, it might be that Merkel is not happy that she is presented with a fait accompli by France and Italy and will veto Draghi for that reason.

·         Fourth, Goldman Sachs played a distinctive and quite controversial roll in the ‘credit adventures’ of Greece over the last five years and Mario Draghi has been at the helm of Goldman Sachs during parts of this period. It is doubtful if he kept his hands clean, when it comes to Greece.

And if Mario Draghi will not become the next president, who will be the most likely candidates then?

Klaus Regling might seem a logical choice: the current head of the European Financial Stability Facility holds a German view on monetary policy (‘tight’) and fiscal discipline (‘strict’). Although he lacks experience at central banks, he does have experience at the IMF and in the German Finance Ministry. But: if France’s candidate Draghi will not become the next president, then Germany’s candidate might also not become the next president. This is how it often works in Europe.

Who are the dark horses then:
  • Yves Mersch
  • Erkki Likanen
  • Nout Wellink
  • Mr. X

Erkki Likanen, the Finnish candidate and chief of the Finnish central bank has been a European Commissioner and is considered ‘moderate’ towards the monetary policy. He might be strict enough for Germany and loose enough for France and the PIIGS (Portugal, Italy, Ireland, Greece and Spain). This puts him in a good position. However, the victory of the Finnish party “Timo Soini” (True Fins) might reduces his chances dramatically, as Finland seems to travel an anti-Euro course.

Nout Wellink, the chairman of the Dutch national bank and my “personal favorite“ (this is indeed meant ironically) can be a good candidate for Germany, as he follows the German lead very closely. However, his (lack of) actions during the Icesave drama, the ABN AMRO-drama and the DSB Bank-drama make him in my opinion totally unfit to become the next president of the ECB. If he would become the next president, this would be a bad day for the Eurozone and the EURO.

That leaves two candidates: Yves Mersch of Luxembourg and Mr. X

Yves Mersch has been president of Luxembourg’s central bank since 1998 and he is an adherent of a tight monetary policy, which is to the liking of Germany. As this candidate from a small, but rich country does not seem to have any ‘enemies’, he might be the ideal dark horse in such an important election. Also because he is probably multilingual and fluently in French.

Or maybe it is a totally unexpected Mr. X that will become the next president. This is after all Europe, where “nothing is as it seems and there is a place for anything”

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