Luxembourg’s central bank governor tipped for ECB top spot

Luxembourg’s first central bank governor Yves Mersch has been tipped for the top position at the European Central Bank (ECB) following the decision by Germany’s Axel Weber to pull out of the race last month.

Mersch, who was responsible for the establishment of the Banque centrale du Luxembourg (BCL) in 1998, could now emerge as the favoured candidate for the top role at the ECB, according to Bloomberg.

On October 31 this year, the ECB’s current President Jean-Claude Trichet is due to step down.

Last month, previous favourite Germany’s Axel Weber withdrew his candidacy, and Chancellor Merkel has since struggled to offer another suitable candidate.

Being a Luxembourger who speaks French, German and English fluently, it is believed Mersch could bridge the gap between those dominant European factions.

The Germans could back him due to his more hawkish inflation-combatting outlook.

In its latest quarterly report issued Monday 21 March, BCL included a speech by Mersch from 3 March warning of inflation risks and signalling a possible need to increase interest rates.

He warned of the good, the bad, and the ugly scenario, whereby in the worst case the Eurozone could be at the threat of a plateau of pressure placed on prices.

“Once the genie of inflation is out of the bottle it might be too late,” he said.

“In order to avoid these effects, we will exert strong vigilance. We will not let the genie out of the bottle, “he added.

The French meanwhile may also favour Mersch over other candidates. He knows them well, as he currently attends meetings of the group of French-speaking central bank governors.

Other favoured candidates include Italy’s Mario Draghi, whose position is shrouded by Italy’s political scandals and its flailing economy, and Erkki Liikanen from Finland.

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