Mario Draghi, European Central Bank president, has risked a German backlash by handing the bank’s powerful economics portfolio to a non-German for the first time in its 13-year history as part of a sweeping management reshuffle at the euro’s monetary guardian.
Peter Praet, a Belgian who joined the ECB’s six-man executive board last June, will head the economics division, which prepares recommendations on interest rate decisions, the bank announced on Tuesday. He takes over from Jürgen Stark, who stood down in December.
Germany’s finance ministry had pushed for Jörg Asmussen, one of its top officials who succeeded Mr Stark, to take the economics post. But Mr Asmussen asked instead for responsibility for international relations – a role which was better suited to his past experience and which Mr Draghi has expanded to include attending, alongside himself, meetings of eurozone government leaders and finance ministers.
“This will not go down well. It will be interpreted as a kind of defeat for the German position and a further strengthening of, let’s say, the Franco-Italian coalition within the ECB,” said Martin Lück, European economist at UBS in Frankfurt. “It is not totally justified – but it will be interpreted this way by the German public.”
Mr Praet’s appointment marks a further break for the ECB from the Bundesbank, on which it was originally modelled. At the euro’s launch in 1999, the economics portfolio was held by Otmar Issing, dubbed informally the ECB’s “chief economist”, who – like Mr Stark – represented Germany’s conservative school of economic thought, which stresses the importance of money supply indicators as inflation warning signals. More recently, German economists have opposed the ECB’s expanding government bond purchases.
However, Tuesday’s reshuffle was carefully balanced. Mr Praet, a former economics professor, was born in Germany, speaks German and has been among those at the ECB favouring maximum pressure on eurozone governments to resolve the region’s debt crisis. Mr Praet has also earned the respect of Jens Weidmann, the Bundesbank president, according to people familiar with ECB deliberations.
The enhanced international role given to Mr Asmussen, which will involve him in decisions on core issues concerning the euro, financial stability and regulation, also appeared likely to deflect criticism of the reshuffle in Berlin. Wolfgang Schäuble, German finance minister, described Tuesday’s decisions as “balanced”.
A possibly riskier step would have been for Mr Draghi to have given the economics portfolio to Benoît Coeuré, former deputy head of the French Treasury, who has also joined the ECB executive board. As a former academic economist, Mr Coeuré had arguably a stronger case for taking over the economics role than Mr Asmussen.
In his European parliament nomination hearing, Mr Coeuré suggested the ECB’s bond buying could be expanded – and will on March 1 take over responsibility for the ECB’s market operations division, which has increased significantly in influence within the ECB since the launch of its bond buying programme in May 2010. Although the ECB board takes decisions collectively, that could give him considerable sway over ECB actions.
The reshuffle followed Mr Stark’s resignation and the departure of Lorenzo Bini Smaghi, an Italian, who defused a dispute between Rome and Paris by agreeing to make way for a Frenchman. But it gave Mr Draghi, who became ECB president only on November 1, an early opportunity to stamp his authority over the executive board.
“It is a very significant reshuffle and it does suggest that we have something of a new broom at the ECB,” said Julian Callow, European economist at Barclays Capital.
Additional reporting by Gerrit Wiesmann
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