Bundesbank chief Axel Weber will not be a candidate to succeed Jean-Claude Trichet as president of the European Central Bank when the Frenchman's term expires in October, European sources said.
A hardline inflation-fighter who has led Germany's central bank for nearly seven years, Mr Weber had been seen as the leading contender to replace Trichet, the second president of the ECB after Dutchman Wim Duisenberg.
But Mr Weber's staunch public opposition last year to the Frankfurt-based central bank's decision to buy the bonds of weak euro zone members to prevent a deepening of the region's debt crisis annoyed countries like France and may have doomed his chances for Europe's top monetary policy job.
One German source told Reuters that Mr Weber had decided to rule himself out for the ECB post after he was informed by the German government that his candidacy did not have the necessary support elsewhere in Europe.
"Weber's ECB candidacy is no longer on the agenda," one European source said.
The report of his withdrawal from the unofficial race surprised markets, pushing the euro down and German bond futures higher. But the moves were limited and short-lived, suggesting investors believe a monetary "hawk" is likely to replace Mr Trichet, even if it isn't the 53-year old Mr Weber.
Sources had told Reuters earlier in the day that the Bundesbank planned to issue a statement about Mr Weber's professional future later today, but the German central bank denied that.
Bundesbank sources said Mr Weber had indicated internally that he was not interested in a second term at the Bundesbank. His first term expires in April 2012.
Sources later said Mr Weber was working on a personal statement on his future.
German government spokesman Steffen Seibert said Chancellor Angela Merkel had spoken with Mr Weber this morning, but declined to elaborate on the "confidential" conversation.
He reiterated Berlin wanted a "strong candidate" to replace Trichet and that this person could be German.
"The question of who succeeds Mr Trichet is not on the agenda now, as his term doesn't end until late autumn. Anyway this is a matter to be decided on internationally and the German government will have an opinion when it is time," said Mr Seibert.
A senior banking source said there was no agreement for Weber to take a post at Deutsche Bank after rumours surfaced that he could move to Germany's largest commercial bank.
Leaders from the 17-nation euro zone are expected to approve a successor to Mr Trichet by the summer following an agreement between Merkel and French president Nicolas Sarkozy.
The region's leaders are currently embroiled in negotations on a comprehensive new package of measures to address the region's sovereign debt crisis, with Berlin pushing other member states to commit to German-style fiscal discipline in exchange for agreeing to increase the region's bailout fund.
Berlin has repeatedly denied that the decision on the ECB presidency post would be part of a "grand bargain" that also included the policy package, which is expected to be finalised at a March 24-25 European Union summit.
But deals on top posts have often been sealed in the EU as part of broader agreements on other contentious issues.
"It could be that Weber didn't want to be part of that bargain," said Katinka Barysch, deputy director of the Centre for European Reform in London.
Mr Weber's opposition to the ECB's bond-buying programme reinforced the view in some European capitals that his strict adherence to monetary orthodoxy might be a problem as the euro zone struggles to emerge from the deepest crisis in its 12-year existence.
France and southern European countries may have pushed hard behind the scenes for a candidate who would be more willing to use extraordinary measures, even if they were in conflict with the strict inflation-fighting mandate the ECB received when it was created in 1998.
"I think it's been clear for some time that Weber was too abrasive a character for the role of ECB president," said James Nixon, an economist at Societe Generale.
Mr Weber's withdrawal does not necessarily mean a German will miss out on the post.
Klaus Regling, head of the European Financial Stability Facility, the euro zone's bailout fund, is now seen as a leading contender for the post, although he said in November he was not interested.
Asked today about the speculation he could become Germany's candidate for the presidency of the European Central Bank, Mr Regling replied "I've got a great job".
Mr Weber's chief rival for the post has long been seen to be Italian central bank head Mario Draghi, who as chairman of the Financial Stability Board has been in charge of coordinating global financial regulation since the 2008-09 crisis.
Other names that have been mentioned include Bank of Finland Governor Erkki Liikanen, a former European Commissioner and a monetary policy moderate; Ewald Nowotny, Austria's central bank chief; and Yves Mersch from Luxembourg, who is the longest serving member of the ECB's governing council.
Marco Valli, chief euro zone economist at Unicredit, said that with Mr Weber out of the way, a candidate from a small country like Mersch or Liikanen appeared most likely.
"Draghi's main problem is his nationality," he said. "With the debt crisis still far from being solved, it's not easy to see the ECB steering so clearly towards the periphery."
A German source said that Merkel's economic adviser Jens Weidmann was seen as the leading candidate to replace Mr Weber at the Bundesbank when he leaves, although ECB member Juergen Stark has also been mentioned as a possibility.
Reuters