Italy and Germany vie for ECB's money-printing press: sources

FRANKFURT (Reuters) - The German and Italian appointees to the European Central Bank’s board are vying for control of the ECB’s market operations, a key position that involves running its vast money-printing program, two sources told Reuters.

FILE PHOTO: Sign of the European Central Bank (ECB) is seen ahead of a news conference on the outcome of the Governing Council meeting, outside the ECB headquarters in Frankfurt, Germany, March 7, 2019. REUTERS/Kai Pfaffenbach/File Photo

Isabel Schnabel and Fabio Panetta are due to take their seats in early January as part of a reshuffle. New ECB President Christine Lagarde will then redistribute responsibilities among the six members of the board, who run the organization.

Whoever gets to control the ECB’s market operations will have a chance to influence its multi-trillion euro bond-buying scheme and have a big say on key questions such as which bonds the ECB can buy and for how long.

A showdown between Schnabel and Panetta would extend a long-running feud between Germany and Italy for influence over the ECB, an institution which under Italian former president Mario Draghi ditched German orthodoxy to embrace the aggressive stimulus policies spearheaded by the U.S. Federal Reserve.

Two sources with direct knowledge of the matter said both Schnabel and Panetta want to leave their mark on monetary policy at the ECB, which is pumping even more cash into the financial system in the hope of boosting inflation in the euro zone.

Schnabel, Panetta and an ECB spokesman declined to comment for this article.

They both backed the ECB’s latest stimulus measures in written replies to the European Parliament published on Friday, ahead of their confirmatory hearings next week. [nL8N2893MU]

With the job of chief economist firmly in the hands of Irishman Philip Lane, the two new entries have trained their sights on the ECB’s market operations, from where they can steer its asset purchases and lending schemes, the sources said.

Key issues include how the ECB can get around a cap on the amount of debt it can hold from any one country - a looming issue for Germany - and which other assets it can turn to if it runs out of bonds to buy.

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The role currently belongs to outgoing board member Benoit Coeure, who also represents the ECB at international fora such as the Eurogroup of euro zone finance ministers and the International Monetary Fund.

One of the sources said Schnabel would be interested in keeping Coeure’s international portfolio but that responsibility may also be spun off.

Attributing portfolios is a prerogative of the ECB’s president and Lagarde’s predecessor, Mario Draghi, put off the matter for months last year. This meant the timing of any decision was uncertain.


Panetta and Schnabel join the ECB at a time of unprecedented divisions about the merit of more bond purchases and on the eve of a major policy review, which will likely see the central bank redefine its inflation target and the means to achieve it.

Germany’s previous appointee to the board, Sabine Lautenschlaeger, resigned weeks after failing, along with more than a third of the ECB’s Governing Council, to stop a decision to resume asset buys at the September meeting.

The central bank is regularly accused in the German media of expropriating German savers, inflating property bubbles and bankrolling indebted southern European governments, such as Italy’s, with its ultra-easy policy.

Schnabel’s area of speciality is in banking crises and she is one of the five “wise people” advising the German government on economic affairs.

Panetta, a Bank of Italy official for 35 years, has rarely spoken about monetary policy but he helped engineer some of the ECB’s crisis-fighting tools.

He was until recently Italy’s representative on the ECB’s supervisory arm, where he successfully fought to water down rules forcing banks to set cash aside against loans that sour.

Additional reporting by Gavin Jones in Rome; Editing by Gareth Jones