Sarkozy Backing of Draghi for ECB Post Puts Pressure on Merkel to Follow
French President Nicolas Sarkozy’s endorsement of Mario Draghi as the next European Central Bank chief pressures German Chancellor Angela Merkel to follow suit or risk rankling her biggest European partners, analysts say.
Sarkozy yesterday backed Bank of Italy Governor Draghi, 63, after signals from German officials that he’s their preferred banker, adding momentum to a campaign to make him Europe’s most powerful monetary policy maker.
The leader of Europe’s largest economy, Merkel has yet to indicate a preference for a successor to Jean-Claude Trichet at the ECB. The appointment may become tied up in German opposition to bailouts. With Portugal’s rescue set to push the cost of aid to euro states past 250 billion euros ($366 billion), Merkel may face domestic criticism for choosing a southern European from a country with a legacy of inflation and debt.
“Merkel is in a dilemma,” Juergen Michels, chief euro- area economist at Citigroup Inc. in London, said by telephone. “The question is whether Merkel can sell an Italian at the helm of the ECB as a guarantor of stability to the German public.”
Draghi emerged as the front-runner after Germany’s Axel Weber withdrew from the race in February. German Finance Minister Wolfgang Schaeuble sees Draghi as likeliest to be appointed as the ECB’s next president, people close to him say. Trichet’s non-renewable eight-year term ends on Oct. 31.
‘Man of Quality’
Sarkozy rejected the suggestion that nationality would hurt Draghi’s candidacy. “We support him not because he is Italian but because he is a man of quality,” Sarkozy said at a briefing with Italian Prime Minister Silvio Berlusconi in Rome. “And it would be a very good signal for Italy, which may have doubts about its role and position within Europe.”
The statement suggests it’s only a matter of time before Merkel throws her support behind Draghi, said Nicolas Jabko, an associate professor of political economy at Johns Hopkins University in Baltimore.
“When Axel Weber pulled out, it was up to the Germans to come up with a credible alternative and they couldn’t,” Jabko said by telephone. “I can’t imagine that Sarkozy would have been so clear if he hadn’t had any prior contact with Merkel.”
In a sign he understands the need to meet the skepticism head on, Draghi has appealed to Germany’s inflation-fighting mindset. He said on April 13 that monetary policy was still “accommodative” even after the ECB raised its benchmark rate this month.
In February, he told newspaper Frankfurter Allgemeine Zeitung that Germany is an example for other nations, calling for tougher sanctions for budget-rule breaches and vowing to ensure price stability.
‘Green Light’
“Draghi has positioned himself as a hawk, and I’m sure that Merkel’s advisers have given her the green light that he’s acceptable,” Jabko said.
A spokesman for Merkel, Steffen Seibert, said yesterday that European leaders will decide the matter in June and that an announcement will be made in due course.
The fact that Draghi comes from a country that was Europe’s biggest debtor until it was passed by Greece may make him a unifying chance, said Anne-Marie Le Gloannec, a senior research fellow on Franco-German studies at Sciences Po in Paris.
“Draghi is a win-win candidate: he reunites the South with the North, he can impose austerity and reassure the more orthodox wings,” Le Gloannec said. “He is a German man in an Italian body. Now Germany will need to do a serious work to make him the candidate to show his competence, and that’s Angela Merkel’s work.”
Libya Stance
The campaign to pick Trichet’s successor follows Merkel’s initial reluctance to aid Greece and her refusal to join allied military efforts in Libya, moves that may have deepened resentment against Germany and diminished her political capital.
“Germany has much less credibility than many there may think,” Philippe Moreau-Defarges, a researcher at the Paris- based French Institute of International Affairs, said by telephone. “Their behavior concerning Greece and Libya has grated on a lot of nerves. Plus, German banks are in very deep in Greece, so there’s a level of hypocrisy that’s not lost on the rest of Europe.”
Draghi, a Massachusetts Institute of Technology-trained economist, has worked at the World Bank and Goldman Sachs Group Inc. (GS) He is also chairman of the Financial Stability Board, which was established by the Group of 20 nations in 2009 to oversee development of standards to strengthen global regulation.
Other candidates include Yves Mersch of Luxembourg, Erkki Liikanen of Finland and Nout Wellink of the Netherlands. Klaus Regling, a German who runs the bailout facility, has never been a central banker.
Board Deal
Picking Mersch, Liikanen or Wellink would leave small countries with three of the six seats on the ECB’s Executive Board and no room for France when Trichet leaves. The selection of Draghi would likely mean the exit of board member and fellow Italian Lorenzo Bini Smaghi, opening a slot for France.
Berlusconi agreed to support a French nominee for the Executive Board, Sarkozy said. Possible candidates include Xavier Musca, Sarkozy’s chief of staff, and Jean-Philippe Cotis, head of France’s statistics agency.
Merkel may be ready to engage in the political horse- trading that goes with European Union personnel appointments, for example by demanding tougher terms on bailout policies or on ensuring that Regling remains in charge of the permanent rescue mechanism that takes effect in 2013.
“The question is whether she’ll demand some compensation deal or whether she’ll intervene so that there can be a candidate from a northern country,” said Le Gloannec.
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