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Markets fret over ECB chief
Source: Agencies |
February 18, 2011, Friday
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Print Edition
Print Edition
WHEN arch-hawk Axel Weber withdrew last week from the contest to head the European Central Bank, the euro and bond yields dipped - a sign of how crucial markets think the ECB's president may be in shaping its policy.
The fevered speculation over who will succeed Jean-Claude Trichet as ECB president when his eight-year term ends in October seems excessive to some central bank watchers. After all, the ECB's decision-making process is designed to stress consensus and limit the power of any one individual.
ECB decisions are made by the bank's Governing Council, which consist of 23 policy makers: the six-member Executive Board plus the chiefs of the euro zone's 17 national central banks. They meet under the principle of one person, one vote.
But the markets sense that a persuasive and intellectually powerful new leader would have opportunities to shape the way in which the ECB operates - especially during the unusual challenges that it will face in the coming year, as it seeks to wind down unprecedented monetary easing steps.
"I think it depends very much on the personality of the individual," said Barclays economist Julian Callow.
"The main issue is how much influence they wield over the ECB board. Someone that is forceful can have quite a strong role in driving the position of the ECB board, which then acts as a bloc vote at the Governing Council meeting."
Charisma and intellect could allow the new president to adjust recommendations that come from the board, and in some cases even determine whether ideas die within the board or survive to be debated by the council.
"The ECB is a collegiate body but sometimes it comes down to how charismatic and persuasive you are in your argument," said RBS economist Nick Matthews.
Presidents can also influence the ECB's thought process by setting its agenda for research, work that traditionally helps to guide its policy direction.
Trichet led a sizeable expansion of the research department. The theme of the persistence of inflation was pushed as a priority from early on; since then wage rigidity and indexation have been the focus of much work and more recently, the reliability of economic models.
The fevered speculation over who will succeed Jean-Claude Trichet as ECB president when his eight-year term ends in October seems excessive to some central bank watchers. After all, the ECB's decision-making process is designed to stress consensus and limit the power of any one individual.
ECB decisions are made by the bank's Governing Council, which consist of 23 policy makers: the six-member Executive Board plus the chiefs of the euro zone's 17 national central banks. They meet under the principle of one person, one vote.
But the markets sense that a persuasive and intellectually powerful new leader would have opportunities to shape the way in which the ECB operates - especially during the unusual challenges that it will face in the coming year, as it seeks to wind down unprecedented monetary easing steps.
"I think it depends very much on the personality of the individual," said Barclays economist Julian Callow.
"The main issue is how much influence they wield over the ECB board. Someone that is forceful can have quite a strong role in driving the position of the ECB board, which then acts as a bloc vote at the Governing Council meeting."
Charisma and intellect could allow the new president to adjust recommendations that come from the board, and in some cases even determine whether ideas die within the board or survive to be debated by the council.
"The ECB is a collegiate body but sometimes it comes down to how charismatic and persuasive you are in your argument," said RBS economist Nick Matthews.
Presidents can also influence the ECB's thought process by setting its agenda for research, work that traditionally helps to guide its policy direction.
Trichet led a sizeable expansion of the research department. The theme of the persistence of inflation was pushed as a priority from early on; since then wage rigidity and indexation have been the focus of much work and more recently, the reliability of economic models.
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