RPT-ECB FOCUS – Signs grow of opposition to Weber presidency

(repeats to additional subscribers)

* French media report government opposed to Weber

* Vulnerable countries may want more of a consensus-builder

* Analysts divided on whether Weber is still front-runner

* Governments stress no rush to decide on next ECB head

By Sakari Suoninen

FRANKFURT, Oct 22 (BestGrowthStock) – Political opposition to
choosing Axel Weber as the next head of the European Central
Bank appears to be growing after he criticised an ECB policy
widely seen as helping to rescue Europe from its debt crisis.

Until this month the German central bank chief, a monetary
hawk, was commonly viewed as the unofficial front-runner to
succeed ECB President Jean-Claude Trichet, whose term ends in
October next year.

But French media reports on Friday suggested Weber’s chances
had been hurt by his uncompromising public criticism of an
emergency scheme in which the ECB buys the government bonds of
heavily indebted euro zone countries.

Business daily La Tribune ran a story titled “Nicolas
Sarkozy does not want the Bundesbank president at the head of
the ECB”. Citing sources in the French president’s entourage,
the newspaper said Sarkozy had not given his assent to German
Chancellor Angela Merkel for a German to lead the ECB.

The newspaper also noted that Sarkozy had met recently with
Mario Draghi, head of the Bank of Italy and the global Financial
Stability Board, whom Italy has informally put forward for the
ECB presidency.

Meanwhile the well-informed blog “Coulisses de l’Europe”
(behind the scenes of Europe), which covers the European Union
and is written by Jean Quatremer, Brussels correspondent of
France’s Liberation newspaper, said the “highest level of the
French government” was determined to block Weber.

Quatremer wrote that Paris was thinking of putting forward
Dominique Strauss-Kahn, who now heads the International Monetary
Fund, as a possible successor to Trichet, and would prefer even
ECB chief economist Juergen Stark, another inflation hawk, to
Weber.

Analysts following the ECB said that while it was very
unlikely the French could retain the ECB presidency after
Trichet’s eight-year term, the media reports may have been
intended to send a signal from the French government to Berlin.

Weber “has clearly blown his chances”, said an analyst at a
major bank in Europe, speaking on condition of anonymity.

“I think he wanted the job originally — who wouldn’t want
that job — but he seems resigned to not getting it, otherwise
why would he say the things he has said?”
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For a factbox on potential candidates, see [ID:nLDE6860VL]

For a profile of Weber, click [ID:nLDE66E1JS]
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Euro zone leaders will ultimately decide who gets the top
job at the ECB. Finance ministers agree on a candidate who is
then recommended to EU heads of government for a formal
decision. [ID:nLDE6241B3]
A year before Trichet steps down, speculation about the
succession is fevered, because the next ECB president will be a
key figure in deciding how quickly the central bank unwinds its
emergency stimulus steps and how completely it returns to the
orthodox monetary stance advocated by Weber.

Last year German and French media reported, citing anonymous
sources, that there was an agreement between France and Germany,
the most powerful players in the game, to shoe-horn Weber into
the ECB presidency.

But such an agreement may not have survived Weber’s
criticism of the bond-buying scheme; he has been expressing
reservations about it since its inception in May and this month
said there was no evidence the scheme was working. He called for
it to be “phased out permanently”. [ID:nLDE69B266]

His remarks may have dismayed governments in struggling
economies such as Portugal, Ireland and Spain. Many public and
private sector analysts think those countries would have faced
higher debt issuance costs in recent months without the ECB’s
bond-buying, which made traders wary of pushing up yields.

As those countries are still under pressure from financial
markets, sentiment may be swinging towards choosing a central
banker who would be seen as more of a consensus-builder, able
to represent the views of the middle of the Governing Council.

In unusually direct criticism of a fellow central banker,
Trichet said this month that the ECB’s governing council as a
whole did not agree with Weber’s remarks. [ID:nSGE69G00A]

Even analysts who still see Weber as a formidable candidate
agreed on Friday that the succession debate had changed.

“This is a change in tone,” said Nomura economist Laurent
Bilke. “Maybe the discussion is a little bit more open than we
thought and it has not yet been decided.”

MANDATE

Euro zone governments insist it is too early to decide on
the succession, partly because Trichet needs to be allowed to
fulfil his duties without becoming a lame duck prematurely.

“Our position is clear: Mr. Trichet’s mandate runs till
November 2011 and we must let him work,” a source close to
French Economy Minister Christine Lagarde said.

German officials have said Weber’s remarks in recent weeks
have been over-interpreted. They also say it is too early to
speculate about Trichet’s successor.

Some analysts said Weber’s position on bond-buying was not
necessarily fatal to his chances, because politicians could
react differently from central bankers to his dissent. The issue
of bond purchases may be less central to politicians than
interest rates.

“I have my doubts whether all politicians are — I put it
mildly — so accustomed to the matter and all the technical
details to understand the matter,” ING economist Carsten Brzeski
said. “Simply put, they don’t give a damn.”

Moreover, Weber’s comments have not been criticised within
Germany.

“In Germany, these comments have not cost him any popularity
— the German government is not complaining,” Brzeski said. “For
me he is still the number one candidate…He has the backing of
the German government, and this is the most important thing.”

But analysts speculate Germany may start to push another
candidate if it becomes clear that Weber is too unpopular
outside his home base. They say Executive Board member Stark
would be the most obvious choice.

ECB rules prohibit renewing the terms of Executive Board
members. Whether moving from a regular position on the board to
the presidency would fall within the prohibition is a grey area.

One possibility is that Stark would leave the ECB for a
while and then re-enter as the president, though such an
arrangement could be open to legal challenges.

So many analysts still see the succession contest as one
between Weber and Draghi.

“It is very difficult to see any other alternatives,”
Brzeski said. “We have Draghi and we have Weber.”
(Additional reporting by Paul Taylor, Leigh Thomas and Emmanuel
Jarry in Paris, Marc Jones in Frankfurt and Noah Barkin in
Berlin; Editing by Andrew Torchia)

RPT-ECB FOCUS – Signs grow of opposition to Weber presidency