Jean-Claude Trichet steps down as President of the European Central Bank this October. So much is certain, if things go according to the statutes of the ECB. Things do not necessarily go according to the statutes, but it seems a certain bet that Trichet will step down as planned.
A question of much concern is who will succeed him? There has been much speculation that the next President would have to come from Germany. (A common conclusion derived from the hypothesis that the Germans and French battle over ECB leadership and influence, with the first President Duisenberg, a Dutch promising to step down after a half term, being a compromise candidate before the French Trichet took over.) As a German candidate, the Governor of the Bundesbank, Axel Weber, seemed as a natural choice. A strong academic turned central banker.
Last week, however, Weber’s candidacy was buried. Weber announced his early resignation as governor of the Bundesbank, thereby automatically pulling out of the race for ECB presidency. Financial Times, among others, have given him a lot of flag for his decision(s) recently. Ralph Atkins wrote on February 10:
“As demonstrated this week, Mr Weber was not strong when it came to the self-discipline usually deemed essential for a central banker. He can act impulsively and is a poor communicator; he has still not declared formally that he will not run for the ECB, or how long he will stay at the Bundesbank, or whether he might take a job at Deutsche Bank.”
And he went on by criticizing Weber’s publicly stated concerns about the ECB’s decision last May to buy up bonds of financially troubled member states:
The ECB has 1,500 employees from 27 countries who speak 23 languages. It works through consensus-based decision-making by its 23-strong governing council. It allows internal dissent, but expects loyalty once a decision is reached.
Mr Weber clearly undermined that principle when last year he publicly criticised the the ECB’s government bond purchase programme. His candidacy alarmed at least some other council members.
Weber’s first public explanation of his decision to step down indeed points to conflicts over the bond purchase programme. According to Daniel Schäfer in Financial Times on February 13, Weber said that “These positions might not have always been helpful for my acceptance in some governments“. That statement is quite important, and in my opinion, a piece of very clear communication. It firstly shows that government approval is important for becoming president of the ECB. No surprises there, at it is governments who choose the President. But secondly, and this is alarming, it shows that governments, according to Weber, will not accept positions they don’t like. That is actually scary, as the appointment of the President should be based on the candidate’s qualifications for leading the ECB according to its mandates. Not according to what governments at a given point in time see fit and popular. It is in conflict with the idea of central bank independence, which is written into the Treaty of the European Union and the ECB’s statutes.
Moreover, and sadly ironical, the issue on which governments didn’t accept Weber’s opinions, was an issue where Weber lived up to the letters of the Treaty. He was, as I see it, not being “hawkish” in the sense that he opposed economic stimulation. What he probably opposed was that the ECB through its government bond purchases began to mix monetary and fiscal policy. And fiscal policy is not something the ECB is allowed to perform. It is simply not allowed to buy up government bonds like it has done; at least not if I understand the Treaty, which says:
“. . . overdrafts or any other type of credit facility with the ECB or with the national central banks in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the ECB or national central banks of debt instruments.”
- Article 21.1 of “ON THE STATUTE OF THE COURT OF JUSTICE OF THE EUROPEAN UNION”, in “Treaty on European Union and Treaty on the Functioning of the European Union“, 2008.
So irrespective of Weber’s preference for birds, his stance was and is faithful to the treaty. Others seem to have been under governmental pressures; so they appear to lack the self-discipline the Financial Times thinks Weber was missing. The next President of the ECB will therefore probably be found among more politically impressionable candidates. This appears as yet another proof that Treaties, like any promise, only bind for as long as it is seen appropriate by the government.