Finland’s Erkki Liikanen most likely to head ECB, say economists

Erkki Liikanen, the former Bank of Finland governor, is the most likely – but not necessarily the best – candidate to succeed Mario Draghi as president of the European Central Bank, according to economists polled by the Financial Times.

Benoît Cœuré, one of the executive board members at the ECB, emerged in the FT’s informal poll as the preferred candidate to take over from Mr Draghi.

Mr Draghi is set to depart at the end of October after a tumultuous eight years in charge, during which time he is widely credited with staving off a collapse of the single currency area.

Top job

The ECB’s leadership is one of the top jobs in European policymaking to be decided during 2019. Mr Draghi’s successor will have to decide how quickly to steer the eurozone out of an era of ultra-loose monetary policy that has dominated the Italian’s term.

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Of the 24 economists polled by the Financial Times, Mr Cœuré was a favoured candidate named by seven respondents. However, just one respondent thought Mr Cœuré most likely to be picked.

That compared with eight votes for Mr Liikanen, whom three respondents said they would like him to get the job.

"My choice and my bet is Erkki Liikanen," said Andre Sapir, a senior fellow at Bruegel and a professor at the Free University of Brussels. "He combines his central bank experience with impressive political experience at home as minister of finance and in the European Commission, where he had two mandates as commissioner."

Long-serving member

Before Mr Liikanen left the Bank of Finland in the summer, he was the longest-serving member on the ECB’s rate-setting governing council. He also played an important role in reshaping how banks are regulated after the global financial crisis, heading a commission that advised Brussels on how to restructure the sector.

François Villeroy de Galhau, Banque de France governor, is also among the favourites to win the race, with six respondents saying he would be named as Mr Draghi’s successor.

Danae Kyriakopoulou, chief economist and head of research at the think-tank Official Monetary and Financial Institutions Forum, said Mr Cœuré, another Frenchman, would "make an excellent choice" but would struggle to secure the nomination because of legal rules that limit executive board members to one term of eight years.

Mr Cœuré’s term is set to expire around the turn of 2020. It is not clear whether an ECB president could win another eight-year mandate however, and some consider an exception to the rule possible.

Ken Wattret, chief European economist at IHS Markit, a research firm, described Mr Cœuré as "an experienced, super-smart continuity candidate, limiting handover risk".

Jens Weidmann, the Bundesbank president and an early frontrunner in the ECB leadership race, was only seen by three respondents as likely to succeed Mr Draghi. The shift comes after reports this year that German chancellor Angela Merkel would prefer the European Commission presidency for the eurozone's largest economy and not the ECB job.

Unpopular

Mr Weidmann is unpopular in several other European capitals, notably Paris, for his refusal to back a series of measures aimed at staving off a serious bout of stagnation in the eurozone.

"Unfortunately, the politicians do not want Weidmann as the next ECB president. Whoever follows Draghi will more or less continue his policies," said Joerg Kramer, chief economist at Commerzbank.

Germany has never had a head of the ECB. Jean-Claude Trichet, a Frenchman, served an eight year term before Mr Draghi took charge.

Olli Rehn, Mr Liikanen's replacement as Bank of Finland head and a former vice-president of the European Commission, was named by five people as a leading candidate.

Respondents did not expect a replacement for Mr Draghi to be announced until after the European parliamentary elections in May. The new parliament would first have to decide on a series of political appointments.

French president Emmanuel Macron and Ms Merkel are expected to fight it out over who decides to nominate the European Commission president, also to be decided in 2019. If the job goes to a German, then the chances of a French ECB head would rise. If Mr Macron wins, the president is more likely to come from a northern European country.

Anti-EU parties

The process could be further complicated by a rise in the share of the vote going to anti-EU parties.

Anatoli Annenkov, European economist at French bank Société Générale, said a more fragmented parliament "could imply a more difficult and lengthy process of appointing a new commission president and commission, EU Council president and even a new ECB president, given that they are all dependent on each other."

January 1st, 2019, marks the 20th anniversary of the introduction of the single currency.

Mr Draghi helped stave off an unsustainable rise in some government’s borrowing costs during the summer of 2012 by promising to do “whatever it takes” to counter market expectations of weaker member states leaving the currency union.

“Any successor will find Mr Draghi’s shoes difficult to fill in terms of communication and market sensitivity,” said Mr Annenkov. – Copyright The Financial Times Limited 2018