There are few harder acts to follow in global policymaking than Mario Draghi, president of the European Central Bank. Since taking over in 2011, the Italian has helped rewrite the central banking handbook, shepherding the euro through an existential threat from the sovereign debt crisis and the danger of a deflationary recession.
The race to succeed him when his term expires next year has been enlivened by signals from Berlin that Angela Merkel would like a German as president of the European Commission. Thanks to the unfortunate but inevitable process of horse-trading among EU countries to place their candidates in charge of key institutions, that would in effect rule out Jens Weidmann, head of the Bundesbank, as the next ECB president.
The signals from Berlin should come as a relief. There is nothing to say a German cannot run the ECB. But Mr Weidmann has been a persistent opponent of Mr Draghi’s far-reaching measures to do, in his own words, “whatever it takes” to save the euro. Wrongly, Mr Weidmann objected both to Mr Draghi’s proposal to stabilise markets by buying the sovereign bonds of troubled countries and to the ECB’s subsequent programme of quantitative easing. The ECB must represent the whole eurozone, not become a cipher for the particular — and frequently outlying — views of the Bundesbank.
It is still relatively early in the search for a successor. But some of the qualities that the next ECB head needs to possess are already clear.
Mr Draghi has an exemplary combination of intellectual rigour about economics, astute judgment about financial markets and a keen awareness of the political waters through which the ECB has to navigate. It is all too obvious when one or more of these qualities is lacking in the head of the institution. By the time the new president takes over, it will have been more than 20 years since the euro was launched. The first president, Wim Duisenberg, struggled to communicate effectively with the public and with financial markets. The next, Jean-Claude Trichet, was a more effective civil servant but made a serious error in raising interest rates in 2011, as the sovereign debt crisis was spreading.
It is too simplistic merely to argue that the new president should take a dovish view on the immediate specific challenges of monetary policy, such as the withdrawal of QE. But it is important that Mr Draghi’s broad approach be maintained. Almost anything could happen during the next eight years — a fresh global financial crisis, the renewed threat of deflation, more problems with eurozone sovereign debt. The new president needs to be prepared to be flexible and activist, and to meet existential challenges with overwhelming firepower.
Nor is the architecture within which the new president operates likely to remain constant. Unlike the US Federal Reserve, which has a more established framework, the ECB is the guardian of a currency whose construction is still being tinkered with by its governments. The new head may find a very different landscape of fiscal co-ordination and banking supervision by the end of her or his tenure, shifting the burden of what monetary policy has to achieve. The president needs to be able to contribute to that debate while keeping the ECB within its proper role as a technocratic institution.
No matter who replaces him, Mr Draghi will be missed. The most worthwhile tribute that European governments can make is to find a successor who most closely replicates his attributes and has the best chance of continuing his success.
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