It should be easy to predict who will succeed Jean-Claude Trichet at the ECB. But since Germany’s Axel Weber said he planned to abandon policy making for academia, the options have been cast wide open.
In a recent statement, Luxembourg pointed to Juncker’s role, which indicates Mersch is perhaps losing his appeal, says Valli at UniCredit.
According to Paddy Power, Mersch sits in third place in the race, although a lot can change before the summer when the ECB ought to signal its preference.
Wellink, on the other hand, has recently emerged as a potential candidate, despite being virtually ruled out because a Dutchman has held the role before.
Recently, Dutch finance minister Jan Kees de Jager told Dutch current affairs television programme Buitenhof: “The favourite candidate from Germany has left. The game seems to be open again. If this would lead to new insights, we will think about it.”
De Jager also made the point that Duisenberg did not fully complete his term. Sondergaard thinks it is “possible” Wellink could be in the running, but the politics hold him back.
Van Nieuwenhuijzen agrees, adding Draghi stands a much better chance on that basis: “The obvious one of course is Draghi. For me, he is still leading candidate.
“It is more about politics than economics. At some point, there needs to be something of a trail there. We’ve had the French, so it’s not going to be a French one. We’ve had the Dutch guy, so it’s not going to be a Dutch guy as far as I think.”
Finland’s Erkki Liikanen, meanwhile, is beating Wellink by the bookmakers reckoning.
“It’s not a given that it will go to one of the big countries. The smaller countries feel they should have a say. They are dissatisfied with the power wielded by the Franco-German alliance in the periphery crisis over the past year,” says Sondergaard.
As governor of the Bank of Finland, Liikanen has been a central bank monetary policy maker since July 2004. His earlier work as the first Finnish member of the European Commission, responsible for its budget, personnel and administration, gives him the benefit of a more pan-European insight.
But although many of Europe’s economists have heard of him, they know little about him. He does not appear to be the market’s preference. “I’m fairly neutral [on Liikanen]” says Valli. “He looks like he will be an OK candidate. I have no big objections or enthusiasm.”
“Very little is known about Liikanen among market participants,” says Sondergaard.
“Would Liikanen be able to step up in front of the cameras?” he asks, casting into doubt the Finn’s ability to perform such a high profile role against the more experienced candidates from large central banks. But by taking up the role, Liikanen could become a household name, adds Sondergaard.
An even less likely outsider, but a preferred candidate for financial markets, is Cyprus’ offering Athanasios Orphanides.
Van Nieuwenhuijzen says: “I would like the Cyprus central bank governor, Orphanides, to have the next face of the ECB. He is certainly one of the most qualified. He has an impressive background and is less indoctrinated with pure ECB thinking about monetary policy.”
Orphanides served as senior adviser to the Fed’s Board of Governors from 1990 to 2008, when he moved to become governor of Cyprus’ central bank.
“He is more like a classic scholar of modern monetary economics, and does a good job of marketing those views,” says Sondergaard.
“We are great fans of him.”
But Sondergaard thinks the odds are stacked too much against Orphanides for the moment.
“He is too junior on the scene. Cyprus has just joined the monetary union. He’s also spent too much time in the US. In the eyes of the Governing Council, he is not a homegrown European central banker. Maybe next time.”
Van Nieuwenhuijzen agrees on Orphanides’ credentials, but also thinks it unlikely he will emerge as a favourite.
“He is academically well-respected. In a political sense, he is not attached to one of the big political powers, so he could play a more neutral role. But I don’t think he’s going to be it,” he says.
“The horsetrading is going to be on more of a smaller Bundesbank type of candidate, so you end up with Mersch or a Finnish or Austrian central bank guy, or a southern Europe supported candidate,” thinks van Nieuwenhuijzen.
In some circles, it is felt it was Germany’s turn to lead the ECB, and the country still has a chance of presenting its own alternative to Weber.
Klaus Regling, CEO of the European Financial Stability Facility, is second favourite to win with odds of 7/2. But the position he already holds means it is unlikely the ECB’s Governing Council will perceive his candidacy as fair, even if he holds the right credentials.
Two current IMF representatives, managing director Dominic Strauss-Kahn and chief economist Olivier Blanchard, have also been mentioned. But being Frenchmen, it is doubtful they will be able to succeed Trichet.
The only wild card remaining is the temporary continuation of Trichet himself – if the Governing Council fails to present a consensus candidate before October.
But Trichet’s eight-year term is non-renewable, and although such a move would be with the aim of ensuring stability, the ECB would lose credibility.
Sondergaard says: “The financial markets like Trichet. He is seen as having steered the ECB well through the crisis. To ensure continuity, you need to find a suitable replacement in time before Trichet leaves. Failure to do so will be seen as an opportunity lost and people will ask ‘why couldn’t the policy makers get their act together?’”
As long as Germany warms to Draghi, and the northern factions do not stamp their feet about the south already having high-level representation through Portugal’s Vitor Manuel Ribeiro Constancio, the ECB’s recently appointed Vice President, Italy looks set to inherit the leadership.