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EUROPEAN UNION

Berlin begins jockeying for top ECB job

Germany on Monday appeared likely to step up its campaign to make Bundesbank chief Axel Weber the next European Central Bank president, as eurozone ministers met to decide on the ECB's vice president.

Berlin begins jockeying for top ECB job
Bundesbank boss Axel Weber. Photo: DPA

In talks still primarily focused on the Greek debt crisis, finance ministers from the euro area must also choose between Portugal’s Vitor Constancio and Luxembourg’s Yves Mersch to replace Lucas Papademos when he steps down in May.

Although ECB President Jean-Claude Trichet’s term runs until October 2011, nominations for the top job and the deputy are closely linked. Chancellor Angela Merkel’s government has officially termed the debate “premature.”

Press speculation, however, say that Berlin has pressed hard for Constancio, currently the Portuguese central bank governor, to be named vice president, with the goal of getting the top spot for Weber.

European Union horse-trading usually results in geographical balance when major positions are handed out.

Countries that lie along the Mediterranean basin also have a candidate for ECB president in the person of Italian central bank president Mario Draghi, according to an Italian finance ministry document leaked to the press.

The choice of vice president thus gives a good idea of who will be the front runner for the top job.

The German newspaper Süddeutsche Zeitung said in an editorial: “These political manoeuvres should not come at the detriment of Europe. Weber is an excellent economist, a recognised central banker who has also shown he can resist political pressure.”

But the daily acknowledged that Draghi has similar qualities.

“It is a political game, it’s no beauty contest,” ING senior economist Carsten Brzeski told AFP.

Weber, who will turn 53 in March, has the solid backing of German politicians and economic experts, though he is not particularly well known by the public.

Placing him at the ECB’s helm would be a guarantee of the euro’s stability and a merciless fight against inflation, which for Germans is the absolute target since the country’s devastating financial crisis in 1923.

A well-dressed former economics professor, Weber’s manner is sometimes abrupt but he has won widespread respect for his rescue of the German financial sector since September 2008.

Being named head of the ECB would be a peak in a rapid career that saw the native of Kusel, western Germany, being named professor at the age of 37. At 45 he was already a member of the “Five Wise People,” a panel of government economic advisors.

Two years later he was named head of the Bundesbank as it faced a crisis brought on by the resignation of Ernst Welteke, who had accepted a luxury stay in Berlin paid for by Dresdner Bank.

Tasked with restoring the central bank’s reputation, Weber gave himself another job as well, watching over the banking sector.

To do that, he brought in a close circle of aides, a move that irritated long-time central bank employees, who form a tight group of their own.

A string of regional Bundesbank offices were then restructured or closed, leading to the central bank’s first demonstration by Frankfurt staff in October.

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ECONOMY

German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.

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With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.

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