Just what the eurozone did not need right now: another possible German-Franco row, this time over jobs at the European Central Bank. In Brussels late on Tuesday, Wolfgang Schäuble, German finance minister, pressed for his deputy Jörg Asmussen to take over the ECB’s economics department from Jürgen Stark when he joins the ECB’s six-man executive board at the start of 2012.
The problem is that France’s Benoit Coeuré, an academic economist as well as French civil servant, who will arrive at the ECB at the same time as Mr Asmussen, is arguably much better suited for the economics portfolio.
Lorenzo Bini Smaghi has the European Central Bank’s lawyers on his side. He is under pressure from Nicolas Sarkozy to step down as ECB executive board member. The French president argues that when Mario Draghi takes over as ECB president next week, there will be too many Italians on the board.
But Silvio Berlusconi, Italy’s prime minister, has yet to find a suitable alternative job for his compatriot (the Italian central bank governorship has gone to Ignazio Visco, its third-in-command). He has tried appeals to patriotism, without any apparent effect on Mr Bini Smaghi. “What should I do, should I kill him?” Mr Berlusonci said he told Mr Sarkozy in Brussels at the weekend.
Italy’s Corriere della Sera newspaper reports today that an internal legal ECB legal opinion, which I understand was reported faithfully, makes clear that a departure of an executive board member cannot be tied to the arrival of another.
Lorenzo Bini Smaghi’s hopes of winning the Banca d’Italia governorship have been quashed, even though at one point it had seemed the prize was within his grasp. So the thorny question remains: can he remain as an executive board member of the European Central Bank?
In Paris, the answer is clearly “Non”. Nicolas Sarkozy has piled pressure on Silvio Berlusconi, Italy’s prime minister, to find a new job for Mr Bini Smaghi.
UPDATE: 20 October 20.06 After outcry from the Bank of Italy, cabinet ministers, and the Italian media, Mr Berlusconi has changed his mind on nominating Mr Bini Smaghi. Instead he has plumped for Ignazio Visco, the current number three at the central bank.
The FT’s Rome correspondent Guy Dinmore and Frankfurt bureau chief Ralph Atkins report that Lorenzo Bini Smaghi is set to succeed Mario Draghi at the helm of the Bank of Italy.
Lorenzo Bini Smaghi. Image by AFP.
Silvio Berlusconi’s nomination is not announced until tomorrow. But if Mr Bini Smaghi does secure it, then it is a coup for the ECB executive board member.
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Both of next week’s key events are on Monday.
In the race to succeed Lorenzo Bini Smaghi (who has said he expects to step down before the end of the year) on the European Central Bank’s executive board, two frontrunners have emerged: IMF executive director Ambroise Fayolle, and second in command at the French Treasury Benoit Cœuré.
Both are highly regarded, as is outside bet Jean-Pierre Landau, a deputy governor at Banque de France, though his age may preclude a move to Frankfurt.
Cœuré is considered by some to have the edge because of the direct financial markets experience he has picked up during his time at the treasury.
Another barrage of warnings this morning from European Central Bank policymakers about the dangers of a Greek debt restructuring. Jürgen Stark, executive board member, told Bavarian radio that Greece was “not insolvent” and that a restructuring “wouldn’t be a solution to the problems that Greece needs to overcome”. But Athens should not assume international bail outs were a “bottomless well” he warned.
A different – and novel - argument was made by Lorenzo Bini Smaghi, his board colleague, the gist of which was that eurozone governments should not allow themselves to be pushed around by financial markets.
The arrival of Vítor Constâncio as the European Central Bank’s new vice-president this week has led to a reshuffling of responsibilities on the bank’s six-person Frankfurt-based executive board. For ECB-watchers, the obvious questions are: who’s up and who’s down? I am not sure if much has changed.
As expected, Mr Constâncio, a former Portuguese central bank governor, will take over responsibility for financial stability issues from his predecessor, Lucas Papademos. That will take up much of his time in coming years, so it is probably not a big deal to him that responsibility for ECB research has been transferred to José Manuel González-Páramo, perhaps the biggest winner from today’s moves. Mr González-Páramo remains in charge of market operations – a busy beat in recent years.
Lorenzo Bini Smaghi, European Central Bank executive board member, has attacked financial market analysts for not doing their homework properly on Greece. Many have jumped to the conclusion that the country will default or have to restructure its debt at some point, he said in a speech in Morocco today. But the International Monetary Fund, eurozone governments and the ECB have taken a different view. “They all consider that a default is not a viable solution.”
His explanation is that private sector economists have simply looked at horrific projections for Greek debt-to-GDP ratios and not studied carefully enough the details of the country’s rescue package. “I have not seen a serious analysis of the 120-page report produced by the IMF which looks at the various aspects of the programme, including the impact of structural measures on growth, the sustainability analysis or other features of the programme”.
German chancellor Angela Merkel’s hard-line stance on Greece has come under attack from a top European Central Bank policymaker, who warned that the cost of inaction could be far worse than offering temporary financial support.
The unusually strong criticism by Lorenzo Bini Smaghi, an ECB executive board member, highlighted frustration in Frankfurt at Berlin’s intransigence, which is threatening a showdown among eurozone political leaders at their summit in Brussels starting on Friday.