From a German Euro to a German ECB (II)

"An Excellent Choice"

An important preliminary decision in the tug of war over the post of ECB president has been taken at the beginning of this week. At the EU finance ministers' meeting in Brussels, Spanish Economy Minster Luis de Guindos was designated to become the next ECB vice president, after Ireland withdrew its candidate, Irish Central Bank Governor Philip Lane.[1] De Guindos will succeed Portugal's Vítor Constâncio, who will step down as planned at the end of May. The decision was hailed by Germany's interim Finance Minister Peter Altmaier (CDU). De Guindos is an "excellent choice," Altmaier declared already in the run-up to the meeting. German Chancellor Angela Merkel and Finance Minister Wolfgang Schäuble already backed the conservative Spanish politician's candidature for the presidency of the Eurogroup in 2015. De Guindos, however, was ultimately defeated by the current Eurogroup chair from the Netherlands, Jeroen Dijesselboem. De Guindos, who had already had a determining influence on the conservative Aznar government's economic policy from 1996 to 2004, is considered to be one of the fathers of Spain's real estate bubble, tracing back to his participation in the elaboration of the 2002 land reform.[2] As Secretary of State for Economic Affairs he formulated the reforms aimed at transforming agricultural land into building property, thereby provoking the Spanish real estate boom.

Sporadic Criticism

Sporadic criticism of his nomination was raised in the European Parliament. According to Sven Giegold, spokesman for economic and financial affairs for the Greens/EFA Group in the European Parliament, "a direct move from the Eurogroup to the leadership of the ECB jeopardizes the independence of the central bank." When the euro crisis began, German Finance Minister at the time, Wolfgang Schäuble, converted the Eurogroup into an informal powerhouse under his command that elaborated the harsh austerity dictate particularly relating to southern European countries, such as Greece.

Weidmann's Prospects Enhanced

Because of the maintenance of proportional regional representation in the allocation of top EU positions, de Guindos' nomination has enhanced German Bundesbank President Jens Weidmann's prospects of being named to the post of President of the ECB. A southern European ECB Vice President increases the "prospect that a representative of the northern euro countries will succeed ECB President Mario Draghi at the president's desk," it is reported.[3] Weidmann is considered to be one of the harshest critics of the current Italian ECB president, whose expansive monetary policy during the euro crisis benefited the highly indebted southern European countries - and mitigated the consequences of Berlin's austerity dictates. Mario Draghi's term of office expires in late October 2019. For months, the German government has been publicly supporting the candidature of Germany's Bundesbank president, who, because of his strict monetary political line is very unpopular, particularly in the south of the euro zone.[4] Sources in the bureaucracy in Brussels have intimated to the media that the candidate from Spain won against the candidate from Ireland, because hís candidature was "supported by France,"[5] even though the EU Parliament favored Lane from Ireland. This implies a quid pro quo typical for eurozone post allocations, wherein France "for example may get to name the next EU Commission President." This key position will also change hands in 2019.

Expansive Monetary Policy Nearing its End

The dispute over Draghi's successor is really about his expansive monetary policy, strongly rejected by Germany. During the euro crisis, interest rates were dropped to a record 0.0 percent, while a quantitative easing - massive government bonds purchase - program provided the crisis-ridden, highly indebted southern European countries with the desperately needed breathing space for their fiscal survival. Officially the ECB program is supposed to continue at least through September 2018 and reach a volume of €2.55 trillion. However, ECB officials are weighing how to phase out their stimulus policies as the region's economy heats up. In early February, Weidmann called for it to be terminated despite a stronger euro currency and volatility on global financial markets," as was reported in US media.[6] Weidmann does not rule out "a short extension" of the "quantitative easing (QE)" bond-buying programs. However, he also supports the position that the eurozone has already recovered stronger than the US economy had been at the time their QE programs had been discontinued. He warns that, in the streamlining of its monetary policy, the eurozone should not be "distracted" by the turbulence of the financial markets.

Concentration of German Power

In US media, voices skeptical of Weidmann's candidature are being raised, referring to him as "hawkish" and an economist with a one-sided focus on monetarism.[7] Weidmann has been so outspoken with his criticism of the ECB decisions in recent years, surmised a financial market analyst, and generated too much opposition in too many other member states for him to get the nod. Beyond these considerations, there is already a very strong concentration of German power in the decisive institutions of the eurozone. The heads of the European Stability Mechanism (ESM), the European Investment Bank and the Single Resolution Board, which monitors the banking processing mechanisms in cases of bankruptcy, are all from Germany. In fact, Berlin has been concentrating on taking control of the levers of power in those sectors of the EU bureaucracy that, in the case of new episodes of crisis, would elaborate and enforce the crisis policy. The German government's efforts to expand the ESM into a "European Monetary Fund" - most recently at the last meeting of the finance ministers - rounds off this picture. Such a body could dictate the economic and fiscal policies to the crisis-ridden countries in exchange for bailouts.

Foreclosures

How this actually works, can still be seen with the example of Greece, where the German government is pursuing its merciless policy.[8] Prior to the recent EU finance ministers' meeting in Brussels, interim German Finance Minister Altmaier called on Athens to fulfill all of the reform requirements so that the next €6.7 billion bailout portion may be granted. Berlin is insisting particularly on speedier foreclosure auctions of apartments and houses via internet. It is hoped that removing these measures to the anonymity of virtual space will undermine the possibility of protests. Even though Athens has already implemented 108 of the 110 "reform requirements," bailout credits are often deferred. The payment of the current portion, agreed on for January, has been delayed until mid-March, according to Klaus Regling, the German Managing Director of the European Stability Mechanism (ESM).[9]

[1] Jetzt steigen Weidmanns Chancen auf den EZB-Chefposten. wiwo.de 19.02.2018.

[2] Wer ist Luis de Guindos? freitag.de 14.07.2015.

[3] Frank Siebelt, Peter Maushagen: Weidmanns Chancen auf EZB-Chefposten steigen. de.reuters.com 19.02.2018.

[4] See also Vom deutschen Euro zur deutschen EZB.

[5] Frank Siebelt, Peter Maushagen: Weidmanns Chancen auf EZB-Chefposten steigen. de.reuters.com 19.02.2018.

[6] Tom Fairless: Weidmann: ECB should wind down QE after September. marketwatch.com 08.02.2018.

[7] Silvia Amaro: A German could be set to take the helm at Europe's most powerful bank - and that could mean a lot for future policy. cnbc.com 20.02.2018.

[8] Altmaier fordert Einhaltung von Reformzusagen. deutschlandfunk.de 19.02.2018.

[9] Jetzt steigen Weidmanns Chancen auf den EZB-Chefposten. wiwo.de 19.02.2018.