Hawks rule the roost in euroland
The European Central Bank, guardian of the fledgling euro, will keep a tight ship, predicts Hellmuth Tromm
Sunday 10 January 1999
Mr Duisenberg's declaration is likely to be only the first of many disappointments for those hoping euroland's central bank will turn out to be more dovish than expected. A poll conducted before the ECB went live makes clear that market insiders believe the ECB will be even more hardline than Germany's central bank.
Market experts at 18 financial institutions were called on to rank ECB council members on a scale of 0 to 10, with 0 standing for the doves most eager to keep rates low and 10 for the hawks who want to raise rates at the first sign of inflation. The six members of the ECB's executive board - called the directorate - and the heads of the 11 national central banks make up the council. The poll shows the 17 members achieved an average score of 6.88 out of 10 - much higher than the 4.9 rating in the poll of Bundesbank council members conducted in February of last year.
However, the ECB's hawkish profile doesn't automatically mean euroland's central bank will strangle European growth with high interest rates. It could conversely mean the ECB has the freedom to make the right decisions on monetary policy to promote growth.
"Having a hawkish council would lead to too-high rates only if they needed to make a point about independence," said Arnaud Mares, analyst at Credit Agricole Indosuez in London. "But these members don't."
In addition, the surprise joint move by central banks in the euro countries to cut rates on 3 December last year obviated the need for the ECB to make any decisions on rates.
The ECB's chief economist, Otmar Issing, with a score of 9.2, is regarded as the toughest talker on rates. Serving eight years as chief economist at the Bundesbank earned him that reputation. Mr Issing is followed by the Bank of Italy's governor, Antonio Fazio; Bundesbank president Hans Tietmeyer; and Mr Duisenberg. To be sure, even the lowest score on the hawk-dove ECB scale - achieved by Luxembourg's Yves Mersch, with a reading of 5.4 - is on the hawkish side.
Below are ratings - and thumbnail sketches - of the men running the ECB:
9.2 Otmar Issing, 63, ECB executive board member and chief economist:
The Bundesbank's former arch hawk and chief ideologue seems ready to play the same roles at the ECB. A die-hard monetarist, he was a professor at the University of Erlangen-Nuremberg and the University of Wurzburg, then became an adviser to the German economics ministry; he joined the Bundesbank board in 1990.
8.4 Antonio Fazio, 62, Bank of Italy governor:
Named governor in 1993, he is one of the most hawkish central bankers. Under his stewardship, Italian inflation has dropped to a 27-year low, which helped win it a place in European Monetary Union. He studied economics at the University of Rome and Massachusetts Institute of Technology.
8.4 Hans Tietmeyer, 67, Bundesbank president:
Chairman of the Group of 10 central bank governors, he was Europe's most influential central banker prior to the ECB's establishment on 1 January. A close ally of Helmut Kohl, he backed the former chancellor's policies for reunification and a single European currency. He joined the Bundesbank board in 1990, becoming president in 1993.
8.0 Wim Duisenberg, 63, ECB president:
He was named EGB president only after he agreed to step down halfway through his eight-year term to make way for a French successor. Dutch finance minister from 1973 to 1977, he was also with the IMF and taught economics before joining the central bank.
7.6 Sirkka Hamalainen, 59, ECB board member:
The only woman on the ECB council, she was named governor of the Bank of Finland in 1992 after a career as an economist at the Finnish central bank and finance ministry. She raised interest rates in March 1998 to help rein in inflation. Finnish inflation fell to less than 2 per cent from more than 3 per cent and economic growth surged to 6 per cent.
7.6 Arnout Wellink, 55, Netherlands Bank president:
He was under Mr Duisenberg at the Dutch finance ministry and then followed him to the central bank, taking over in 1997, when Mr Duisenberg left to head up the European Monetary Institute, the precursor to the European Central Bank. He is a former teacher.
7.5 Jean-Claude Trichet, 56, Bank of France governor:
He is the prime candidate for the top ECB job if Mr Duisenberg retires in four years. Appointed to the central bank in 1993, he has defended the franc through bouts of speculation and has brought inflation to a 40-year low. He took over the Paris Club, which renegotiates government debt with developing countries, in 1985.
6.8 Matti Vanhala, 52, Bank of Finland governor:
He replaced Ms Hamalainen, having served on the central bank's board for six years. He was a member of the EU monetary committee 1995-98 and helped to introduce the Finnish markka to the European exchange rate grid in 1996. He headed the Bank of Finland's foreign exchange department.
6.7 Maurice O'Connell, 62, Central Bank of Ireland governor:
He faced one of the toughest jobs in the 12 months running up to the euro, having to cut Irish interest rates to German levels at the same time as Ireland's inflation rate was the highest in the region. He earned an MA in classics and was a teacher before joining Ireland's Department of Finance in 1962.
6.7 Eugenio Domingo Solans, 53, ECB board member:
Former Bank of Spain executive commissioner, he is in charge of the ECB's statistics department as well as bank- notes and information systems. He was a professor at various universities and worked with Banco Atlantico and Banco Zaragozano.
6.3 Luis Rojo, 64, Bank of Spain governor:
Governor since 1992, he has pushed governments to cut deficits to reduce inflation. In 1994 he won independence for the Spanish central bank. Investors consider him a conservative in monetary policy. A former economics professor, he started with the central bank's research department in 1971.
5.9 Antonio de Sousa, 43, Bank of Portugal governor:
He has been head of the Portuguese central bank since June 1994 and has helped guide Portugal to its place in EMU. Under his stewardship, the central bank has lowered interest rates gradually toward the German benchmark without raising inflation pressures.
5.8 Tommaso Padoa-Schioppa, 58, ECB board member:
One of the chief architects of the Maastricht treaty, he is the ECB's foreign minister. A former deputy governor of the Bank of Italy, he was named head of Italy's stock market watchdog Consob in April 1997. He joined the central bank in 1968 and later chaired a commission that became the EMI.
5.6 Klaus Liebscher, 59, Austrian National Bank governor:
He joined the Austrian central bank board in 1988 after a career as a commercial banker at Raiffeisen Zentralbank Osterreich. He was named president in 1995 and reaffirmed in his position in June 1998, when it was recast as governor.
5.6 Christian Noyer, 48, ECB vice president:
He was director of the treasury, France's top civil job, from 1993 until 1995, when he became chief of staff under finance minister Jean Arthuis. His role at the ECB, where he's in charge of personnel, administration, and legal services, marks his central banking debut. He was financial attache of the European Community, and head of French bank regulation.
5.5 Alfons Verplaetse, 68, National Bank of Belgium governor:
He joined the central bank in 1953 and became governor in 1989. For six years until 1988, he was chief of staff under the prime minister and played a key role in the recovery of the Belgian economy.
5.4 Yves Mersch, 49, Central Bank of Luxembourg governor:
He heads the central bank of Luxembourg, whose currency has been tied to the Belgian franc since 1922. He was director of the country's Treasury department for nine years, has made relatively few remarks on policy, and economists find it difficult to rate his stance.
Reprinted from the January issue of 'Bloomberg Magazine'. Copyright: IOS & Bloomberg
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