Monday, May 2, 2011

Steering a course through the eurozone’s squalls

by David Marsh

Financial Times

May 1, 2011

The changing of the guard at the Bundesbank is an event of practical significance as well as ritual solemnity. The German central bank has ceded to the European Central Bank its former role at the fulcrum of European money, yet its head is the most important person after the ECB president on the bank’s 23-member decision-making council. Jens Weidmann, Chancellor Angela Merkel’s economic adviser since 2006, has taken over from Axel Weber as Bundesbank president, marked by a ceremony on Monday at its Frankfurt headquarters which Wolfgang Schäuble, German finance minister, and Jean-Claude Trichet, ECB chief, are scheduled to attend.

The transfer of authority takes place at a sensitive time. Mario Draghi, the Banca d’Italia’s seasoned governor, will almost certainly take the top ECB job when Mr Trichet retires at the end of October. Ms Merkel, who coveted the position for Mr Weber and still smarts from his rejection of the post three months ago, has still not officially given her blessing to Mr Draghi’s nomination.

Still more important, economic and monetary union, the most ambitious international currency project since the fixed-rate Bretton Woods system was established 65 years ago, is at a turning point. The 17-nation monetary construction dominated by Germany and France looks likely either to become a “transfer union” in which creditor nations permanently support debtor states, or to split into segments of richer and poorer countries. Either course would bring intractable problems – and Germany, as Europe’s pivotal but strangely reluctant power, will play a key role in deciding which way EMU goes. So today’s speeches by Messrs Schäuble, Trichet, Weber and Weidmann will be followed with rapt attention.

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