May 17, 2019
The first reaction - ours too - to Jens Weidmann's comments on the German trade surpluses is that he is running for the big job. We cover his comments in a separate article below, but on reflection, we should probably not make too much of it in terms of what it means for Mario Draghi's succession. Weidmann is one of the very few German economists who supports the ECB's inflation target. He understands why central banks purchase market assets. He has not joined in the Target2 bandwagon in the German debate. And we should not be surprised that he has reflected on the troubling aspects of the Germany's persistent current account surpluses as well. This is not a tactical manoeuvre.
That said, we do think that he is running for the job in the sense that he is available if called upon. EU leaders will fold the debate on the ECB presidency into their wider choices for the EU's four most important jobs - presidents of Commission, Council and ECB, and High Representative for foreign and security policy. So if Manfred Weber, the German spitzenkandidat, ends up as Commission president, the debate on Weidmann is over. The issue would arise only if Weber did not get the job.
Unlike some other observers we think the latter question is widely open. The European elections will matter, and they have yet to take place. The speculation about jobs has a similar quality to that in 2016 when people were wondering who would be Hillary Clinton's treasury secretary or choice for the Fed.
If the Commission job were to go to Michel Barnier or Christine Lagarde, then Weidmann would have a chance for three reasons. The first is that Merkel could then come under domestic pressure to nominate him. German newspapers, like Die Welt, are framing the debate on the ECB presidency in terms of the pursuit of narrow interests, like securing higher interest rates for German savers. We never cease to be amazed at how people have been advocating rules-based policies all their lives suddenly become very flexible when the rules go against their short-term interests. They assume, falsely in our view, that Weidmann would raise interest rates more quickly than others. But the illusion that he might could make it more likely for Merkel to come under pressure to put his name forward.
The second reason is Weidmann's popularity in France. It is conceivable that Emmanuel Macron would support him as part of a package deal. Weidmann is a fluent French speaker, and has worked at the Banque de France during his studies. We noted that he has been charming French audiences for a number of years. The Italians find him scary, but not so the French.
The third reason is that Weidmann is more qualified than any of the other candidates under discussion. The number of economists in the ECB's executive board is falling dramatically. Mario Draghi, Vitor Constâncio (now replaced by Luis de Guindos), Peter Praet, and Benoît Coeuré all have a deep understanding of the economic theories behind monetary policy. It is quite possible that Philip Lane, the Irish central bank governor who will replace Peter Praet at the end of the month, could end up as the only economist on the ECB's executive board.
But in the end, does it matter whether Weidmann becomes ECB president? In terms of ordinary monetary policy, probably not so much as people think. But it matters for the important out-of-the-box stuff. Draghi himself led the push towards QE at a time when the majority of governing council members were deeply sceptical. The problem with Weidmann is not that he is more conservative than Draghi, but that he is less likely to take risks or be as creative. Weidmann would never have dangled a phantom programme like OMT in front of gullible investors, or given the legally meaningless promise to do whatever it takes. He would have played the ball straight. This would be our main reservation about him, but that reservation would also apply to every other candidate currently under discussion.
We also have stories on Jens Weidmann's comments on the German current-account surplus; on Macron's high-risk gamble to step to the front of the election campaign; on Syriza's desperate attempts to fish for voters; and on the now certain end of May's premiership.