It comes with a nice office and a grand title. You would
probably have a pretty generous expense account. And there may well be a
lucrative consulting gig with Goldman Sachs Group when it is all over.
Even so, you would have to be bordering on insanity to
accept the role of European Central Bank president when Jean-Claude Trichet
steps down in October this year.
It’s the job from hell. The euro crisis is getting worse.
You will be asked to achieve the impossible. You will have zero independence.
And the chances are that you will wind up being remembered as the person who
presided over one of the biggest monetary failures in history.
That’s hardly an appealing prospect.
When Axel Weber unexpectedly resigned as Bundesbank
president this month, the favorite to take over from the usually calm and
confident Trichet was suddenly out of the running.
The field is now wide open. Mario Draghi, the Bank of Italy
governor, has been installed by the bookmakers as most likely to get the job.
He is followed by Erkki Liikanen, the Finnish central banker, who is now at
odds of 2-1, followed by Luxembourg’s Yves Mersch, and Dutchman Nout Wellink.
An outsider at 20-1 is another German, Klaus Regling, the head of Europe’s
bailout fund. It could even be another Frenchman - Xavier Musca, the economics
adviser to French President Nicolas Sarkozy, has been mentioned as a
Yet surely any job would be preferable to running the ECB.
Greek finance minister, for example. Or running the public relations unit for
BP Plc on the Gulf coast. Either would be better than trying to sort out the
mess the euro has become.
First, the crisis ebbs and flows. But the only real fix is
for the economies of the 17 members to converge, and there is no sign of that. Germany
is booming, and the peripheral countries are slumped in recession. The German
economy will expand 2.3 percent this year, according to the government. By
contrast, the Greek economy shrank 1.4 percent in the fourth quarter alone.
From a year earlier, its economy contracted 6.6 percent.
The difference in growth rates between Germany and the worst
performing countries is now close to nine percentage points. In effect, the
imbalances are widening -- and that means the crisis is becoming more severe.
Second, the new ECB president will be asked to achieve the
impossible. The central bank is mandated to keep consumer-price increases at
just below two percent. In January, the euro area’s inflation rate was already
2.4 percent. Thomas Straubhaar, director of the Hamburg Institute of
International Economics, says German inflation will reach four percent by the
end of 2012. Price pressures are growing everywhere, and at some point the ECB
will have to act.
That will plunge the struggling nations into a depression.
What happens to an economy that has already contracted more than six percent in
the past year when you boost interest rates? You create a full-blown depression
- 1931 will seem mild by comparison. They will burn your effigy in Athens and
Dublin. You can’t maintain price stability and rescue the peripheral nations,
but that’s what you will be asked to do.
Three, the bank’s independence is about to be compromised.
The euro area’s leaders will struggle to keep the single currency together.
They have invested too much capital in this project to let it fail. They will
come up with a dozen plans and trillions of euros in rescue packages. The
chances of the ECB maintaining its independence during that process are zero.
If you need to print money to keep the euro intact, you will
have to turn on the presses. If you have to prop up bankrupt banks, the euros
will have to be made available. If you need to cut interest rates and let
inflation rip, you will have to ignore your mandate for price stability. The
ECB president will end up having to do what French and German politicians tell
him, regardless of whether it makes any economic sense.
Four, you will probably end up presiding over the
dismemberment of the euro. This is an eight-year term. Whoever gets the job
will still be there in 2019. It is hard to see the single currency surviving
that long without one or more countries leaving. The pressures within the system
are too great to be contained. Who wants to be remembered as the person who
presided over one of the great monetary failures in history?
They will probably find someone to take the job. There’s
always someone who wants a promotion.
But Axel Weber was a candidate of stature, just what the ECB
needs. He walked away from the gig. The other candidates are now taking a good
hard look at the job description.
(Matthew Lynn is a Bloomberg News columnist. The opinions
expressed are his own.)
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