(Bloomberg) – The European Central Bank is preparing for the appointment of a new president to the economic and political challenges that led to Mario Draghi's eight-year presidency, far from being resolved.
The economy is slowing down again and nationalists across the country are challenging the principles of European integration. The competition adds to an additional layer of uncertainty as the ECB attempts to remove stimulus measures from the crisis period that kept interest rates at record levels.
There is also a larger horse trading process that will encompass other key positions. The selection of the next President of the ECB is part of a major reshuffle that will also see a new President of the European Council, who will chair the EU summits, a new President of the President of the Parliament, as well as new commission and president.
Before addressing the question of who should replace Draghi, probably during the summer, leaders of the European Union must navigate the legislative elections of the bloc in May.
This could bolster hard-line supporters based in Germany, who have long called for a tighter policy and oppose the extraordinary package that Draghi had used to keep the euro together during the debt crisis.
Or it could give leverage to Italian Matteo Salvini and his ally, Marine Le Pen, a French nationalist. They do not care about the constraints of monetary union and sometimes ask whether their countries should stay in the euro.
National governments nonetheless play a key role in designating the ECB President. In addition, the leaders of the euro member countries are sensitive to increasing support for the populists. They will consult the European Parliament and the Governing Council of the ECB, but the finance ministers will finally formulate the recommendation and the national leaders will have the last word.
On 21 January, the eurozone finance ministers are expected to launch a call for applications for Peter Praet's board of directors. This is a crucial appointment because Praet, as chief economist, oversees economic projections and drafts monetary policy proposals.
His eight-year term ends in May, just after the European elections and before a political meeting of the ECB on 6 June. The governor of the Irish central bank, Philip Lane, is considered the favorite to replace him, partly on the basis of his university degrees and partly because Ireland has never held a seat on the board d & # 39; administration.
With regard to Draghi's work, it is unlikely that the finance ministers will have a formal discussion before their June 13 meeting. Hearing about a candidate could allow heads of government to sign at their summit a week later.
The number of posts at stake could postpone the decision on Draghi's succession beyond June, which could bother investors trying to determine when the ECB will start raising rates. So far, the central bank is committed to keeping rates at their record lows "at least until the summer of 2019."
One of the risks is that the next downturn will occur before policymakers have a chance to tighten significantly, leaving a new president with little ammunition to support the economy and a torch in Rome , in Paris or even in Berlin accusing the central bank of being taxed on their supporters.
Market prices currently suggest that the slowdown in the economy will prevent Draghi from raising rates even before leaving, making his successor's opinion even more important.
"The race is open and a surprise is possible," said Mujtaba Rahman, managing director of the Eurasia Group in London.
– With the help of Birgit Jennen and Zoe Schneeweiss.
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