The great ECB reshuffle is on

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PARIS — The contest to succeed Mario Draghi is now officially open.

The president of the European Central Bank won’t leave office until October 21, 2019, but the major changing of the guard that will culminate with the appointment of his successor next year is underway.

In Europe right now, said a French government official, “the ECB reshuffle is the only game that counts. It’s the only reason the Eurogroup president’s job wasn’t contested at all — for the first time ever. All the governments were saving themselves for the ECB derby.”

Listen to finance ministers, heads of government, or the eurozone’s top central bankers, and the party line is clear: It’s much too early to think about Draghi’s successor and nothing will happen until next year.

As every single central banker knows, this is both a lie (everybody thinks about it) and true: So many things can happen between now and decision time — probably before the summer of 2019 — that there cannot be any sure favorite for the job at this stage.

If bookmakers were taking bets on the ECB race, the money would now be on Jens Weidmann, the current head of Germany’s Bundesbank, succeeding Draghi next year.

And before winners emerge, conflicting political interests must end in compromise, unavoidable clashes of personalities have to be dealt with, and the unofficial geographical balance at the heart of the ECB’s governance must be respected.

By the way, don’t forget the monetary policy thing. In the midst of all this backroom dealing and political give-and-take, a debate must surely be lurking somewhere on what type of central banker the eurozone needs at its current, crucial juncture? Or does it?

But first, eurozone governments need to agree on a vice president to replace Portugal’s Vítor Constâncio, whose term expires in May. On Monday, the new Eurogroup president, Mário Centeno, formally asked his finance minister colleagues to submit their nominations for the job by February 8, so that the heads of government have time to agree before the spring.

Due to the complex rules — legal and political, overt and covert — under which the ECB has operated since its creation, the choice of vice president will help influence not only the future political balance of the central bank’s ruling bodies but also the type of policy to expect from 2020 onward.

If bookmakers were taking bets on the ECB race, the money would now be on Spanish Economy Minister Luis de Guindos becoming the bank’s vice president this year, and Jens Weidmann, the current head of Germany’s Bundesbank, succeeding Draghi in November next year.

Unwritten rules

That would follow a couple of the ECB’s supposed unwritten rules.

First, it’s time for Spain to have a representative on the ECB’s executive board — whose six members manage the bank’s daily operations. The tradition had long been that the four largest eurozone economies — Germany, France, Italy and Spain — have one representative on the board, with the other two seats being left to lesser powers.

Spain lost its seat in 2012 after German objections, because the country was embroiled in the tough discussions that led to a eurozone bailout of its banking system.

The second ostensible rule, the idea that “it’s Germany’s turn” to head the ECB, is what makes Weidmann the favorite to head the bank next.

Being the favorite, however, is hardly the best place to be.

Consider the fate of the last two ECB presidents. France’s Jean-Claude Trichet was the arch favorite throughout the negotiations that led to the euro’s creation in 1999 to head the new central bank from its very first day. Then he was put under an investigation in France for his role in the Credit Lyonnais banking debacle. He had to wait four years, until 2003, to clear his name and get the job.

Jens Weidmann, a potential successor to Mario Draghi at the ECB | John MacDougall/AFP via Getty Images

In 2011, another arch favorite looked like a shoo-in to succeed him: Axel Weber. The then-Bundesbank president had all the credentials for the job, and a German would have succeeded a Frenchman, which is of course the natural order of things. Right?

Not quite. Weber had increasingly voiced his opposition to Trichet’s policies, which he deemed too lax and ineffective, and ran afoul of then-French President Nicolas Sarkozy. The German government had to let him know that he wouldn’t have the necessary support to become ECB president. Weber resigned to join the private sector; he is now the chairman of UBS, the Swiss bank.

“Draghi-Weidmann now looks like a repeat of Trichet-Weber,” according to a European central banker.

But there’s a big change, he added: “You have the same German objection to what they consider irresponsible policies, except that it’s obvious Draghi is a resounding success. That was debatable for Trichet in 2011.”

“It should be impossible to appoint as head of the ECB the man who has been in the minority for so long and criticized the policies for so long,” opined a former member of the ECB executive board.

As for De Guindos, he ticks two other boxes: the Spaniard is a representative from “the South” of Europe. In ECB tradition, that would make it easier for a president from “the North” (think Germany or the Netherlands) to be appointed. And De Guindos’ hard-line views on budget deficits, as well as the economic recovery of his country in recent years, have made him a favorite of Germany.

Will the future ECB president continue Draghi’s action and gradually bring monetary policies back to normal while keeping a watchful eye on the economy? | Thomas Lohnes/Getty Images

The downside of his appointment is that it would be the first time a politician would sit at the top echelons of the ECB. Draghi is said to be fiercely opposed to the very idea of politicians at the central bank. On top of this, according to someone who regularly talks to him, the current ECB president doesn’t seem to hold De Guindos in high esteem. Draghi doesn’t get a vote in the process but that wouldn’t prevent him from unofficially lobbying and opining.

Depriving the Germans

There is also a scenario where a candidate from the North could be nominated as vice president in order to deprive the Germans of their unofficial claim on the ECB presidency.

“If I was [Emmanuel] Macron, that’s what I would do,” said a French official. “You give the vice presidency to a German or a substitute German, and you can push your own guy next year.”

A European Commission official said that a vice president candidate in that case could be Jeroen Dijsselbloem, the former Dutch finance minister and Eurogroup president who is out of a job after his party did badly in the election last year.

That would still mean a politician at the ECB, but it’s not an objection that governments are likely to spend much time on if they think it serves higher goals — that is, paving the way for an overall compromise.

Macron might then be tempted to support the not-so-discreet campaign that Bank of France Governor François Villeroy de Galhau has mounted to get the top ECB job. A former Treasury official who went on to a career in retail banking, Villeroy de Galhau is said to have a good relationship with Draghi, and he has made enough hawkish speeches in recent months to be acceptable to Berlin.

“Is Weidmann the man you want to see in that chair?” — French government adviser

He would fit with the French tradition of appointing technocrats as central bankers, contrary to countries where an academic background and a deep grasp of economics are deemed preferable.

If, on the other hand, Macron accepts that the ECB job should go to Germany, he may suggest to Angela Merkel to put forward another candidate.

The name of Klaus Regling, the head of the European Stability Mechanism (the eurozone’s bailout fund), is sometimes mentioned. He had already been seen as a contender in 2011, but he is 67 and has denied interest in the job. Merkel might also decide to nominate an academic — and she has an ample choice from Germany’s deep bench of economists, some of whom even supported Draghi’s actions.

Amid the early maneuvers and calculations, the debate on future monetary policy hasn’t been much heard, but it is at the center of the worries for governments eager not to rock the economy.

Will the future ECB president continue Draghi’s action and only gradually bring monetary policies back to normal while keeping a watchful eye on the economy? Or will his priority be to undo what Draghi did, shrinking the ECB balance sheet as quickly as possible in the name of orthodoxy?

“You look at Draghi’s record — or even Trichet, for that matter — and you can clearly see the power the ECB president yields, however collegial they say they are in Frankfurt,” said a French government adviser. “And then you wonder: Is Weidmann the man you want to see in that chair?”

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