February 10, 2011 / 4:15 PM / 8 years ago

ECB FOCUS-Rules of the game leaves few possibles for top job

* Italy pushes Draghi but “southern” tag seen as a problem

* Political landscape seen favouring “northern” candidates

* Austria’s Nowotny rules himself out of race

* Smaller countries in pole position

By Paul Carrel

FRANKFURT, Feb 10 (Reuters) - Axel Weber’s withdrawal from the race to be the next European Central Bank president leaves only a handful of plausible alternatives whose nationalities may prove as decisive as their abilities.

European sources told Reuters on Wednesday that Weber will not be a candidate to succeed Jean-Claude Trichet as ECB president when the Frenchman’s term expires in October. [ID:nLDE7180MQ]

The news has blown open the race to succeed Trichet, but once political considerations are taken into account there are few men — and no women — left standing.

“It’s like an elimination puzzle really,” said David Marsh, author of ‘The Euro: The Politics of the New Global Currency’. “It does boil down to just two or three people from some of the smaller states.”

Italy was quick to promote its man, with Foreign Minister Franco Frattini saying on Thursday Rome would make “every necessary effort” to support the candidacy of Bank of Italy Governor Mario Draghi.

Draghi, 63, would bring international experience to the ECB’s helm, having worked at the World Bank and as current head of the Financial Stability Board, in charge of coordinating global financial regulation since the 2008/9 financial crisis.

Would it not be best to appoint the strongest candidate to follow Trichet, who has steered the ECB with a strong hand during the global financial and euro zone debt crises?

“That would be great but politics carries a lot of weight in this kind of thing,” said UniCredit economist Marco Valli.

“From a technical point of view, Draghi is probably the best candidate,” he said. “But due to political reasoning his chances appear to be slightly lower than some governors from small countries, countries with a generally hawkish posture which could be seen positively by the Germans.”

The appointment of Portugal’s Vitor Constancio as ECB vice president last year was seen as an indication that the next ECB chief would come from a northern country, keeping a balance in the top two positions between the euro zone’s north and south.

If such etiquette is to be respected, there is a rapid drop in the number of candidates suitable to succeed Trichet.

Draghi’s standing may also be damaged by having worked in 2002-5 for investment bank Goldman Sachs, criticised for its role in the financial crisis.

Other protocols suggest Trichet cannot be replaced by a fellow Frenchman, ruling out Bank of France chief Christian Noyer and wildcards like International Monetary Fund head Dominique Strauss-Kahn.


For factbox on Trichet’s possible successor, click:


For a graphic on ECB Governing Council members, click:




Germany, the euro zone’s dominant power, could still put forward a candidate. There was a widespread understanding in Europe before Weber withdrew from the race that it was Germany’s turn to take a top policy job.

“I think there are three options,” said BNP Paribas economist Ken Wattret. “Option one is another German. Option two is a compromise candidate — somebody from the core euro area countries - and option three is Mr Draghi.

“I would say option one is 60-percent likely and options two and three are 20 percent likely each,” he said.

Government sources say Merkel is unlikely to propose another German, but should she decide to do so, one candidate seen as an alternative to Weber is Klaus Regling, head of the Europe’s EFSF bailout fund.

Regling, 60, has an impressive resume, having served at the International Monetary Fund and in the German Finance Ministry before rising to be director-general for Economic and Financial Affairs in the EU executive in Brussels.

His big drawback is he has no central banking experience.

“If it’s going to be a German now, it’s going to have to be a German with a question mark about his experience. But that’s not a deal breaker by any means,” said Wattret.

He noted that Weber had stirred up controversy at the ECB, particularly by opposing its government bond-buying programme. A different German at the head of the ECB could be more widely acceptable while ensuring Germany monetary orthodoxy holds sway.

But Marsh said Trichet’s successor should come from within the 23 members of the ECB’s policymaking Governing Council in order to ensure the central bank remains independent.

“I think it’s got to be someone from the group of central bank governors who attend the ECB council meetings,” he said. “I think that having somebody from outside wouldn’t fly because they don’t have enough of the allure of being a central banker.”

Choosing a central banker from a northern euro zone country who already sits on the ECB’s Governing Council leaves very few candidates.

Austria’s Ewald Nowotny has already ruled himself out. [ID:nFAT007185]. Marsh named Luxembourg’s Yves Mersch and Finland’s Erkki Liikanen as possibles.

Conventional wisdom has had it that even their chances could be crimped by the fact that Luxembourg’s Jean-Claude Juncker heads the Eurogroup of euro zone finance ministers while Finland’s Olli Rehn is the bloc’s economics commissioner.

But somebody has to get the job.

“It’s not about extraordinary personalities, it’s about making the group of people there work as a team,” Marsh said. “I see no reason at all why a smaller country couldn’t do that.” (Editing by Mike Peacock)

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