How Will the ECB Election Drive the Euro?

 

The runoff for the top job at the ECB is coming down the final stretch and the candidate will determine the future of the monetary policy in the EU. Negotiations between governments over the ECB top job and the presidencies of the commission and the European Council, probably won’t kick off until after European elections next month. Mario Draghi, the current President of the ECB is due to retire at the end of October.

Who are the German and French Choices?

Germany’s top choice for the head of the ECB would probably be Bundesbank President Jens Weidmann. France’s options are ECB Executive Board member Benoit Coeure and Francois Villeroy de Galhau, governor of the national central bank.

What is an Alternative?

An alternative would be two different Finnish bank officials. Former ECB policy maker Erkki Liikanen and one-time European Commissioner Olli Rehn are both in the running for the top job in Frankfurt. Rehn, 57, currently is Finland’s central bank chief, the role previously held by Liikanen, who is 68-years old.

The Finnish election this past weekend was one of the tightest in history. The Social Democrats, which is Liikanen’s party, won the most seats. The election left a fragmented parliament and set the tone for tough coalition talks. It’s not clear if the issue of the ECB candidacy will feature in any coalition negotiations, which are set to be lengthy.

What Traits are Needed?

If you recall, Mario Draghi sheparded the EU through a financial crisis. He might be best known for saying in July 2012 that he would do “whatever it takes” to protect Europe’s single currency. 7-years later, the EU is still in tact. Yet while the economic backdrop is not stellar, it is better than it was during the European debt crisis. The ECB will need a steady hand to rule the central bank. The European economy is softening which makes the shift to an incoming leader very crucial.

Historically, the EU has seen the haves, Germany, and France, and the have-nots, Italy, Spain, and Portugal. For there to be a success, the policy will need to cater to all the countries in the EU, to drive success.

How Will the Euro Behave?

The next election will have an affect on the value of the Euro depending on the EU choice to be ECB President. It has been clear that Draghi would do whatever it takes, but that might not be the case if Bundesbank President Jens Weidmann is elected. Germany has been wishy washy about their view of the euro. This election result could have a negative effect on the value of the Euro.

What will also be key is to determine if the new ECB President is a hawk or a dove. At this junction, the ECB is in need of additional stimulous and desperately in need of a dove. Any hawkish tone will buoy the Euro and reduce the EU’s ability to stimulate their economy using exports as the main driver.

Comments

What Next?

Recent Articles