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ECB Begins Board Reshuffle Amid Worrying Slow Growth Forecasts - Scholars

© AFP 2021 / Daniel RolandThe Euro logo is pictured in front of the former headquarter of the European Central Bank (ECB) in Frankfurt am Main, western Germany, on July 20, 2015.
The Euro logo is pictured in front of the former headquarter of the European Central Bank (ECB) in Frankfurt am Main, western Germany, on July 20, 2015. - Sputnik International
BRUSSELS (Sputnik) - The European Central Bank (ECB) is about to see some new people in top jobs this year, including a new president, but the reshuffle will take place amid troubling growth forecasts.

On Monday, the International Monetary Fund (IMF) updated its World Economic Outlook with global growth 0.2 and 0.1 percentage points down for 2019 and 2020, compared to October forecast, citing downward revisions in the euro area, among other factors. The IMF pointed to Germany's difficulty with auto production and lower demand for its exports, Italy's sovereign and financial risks, and the United Kingdom's Brexit tribulations.

Who Comes After Draghi?

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The reshuffle will start in the coming weeks with the replacement of the ECB chief economist — the Belgian Peter Praet — at the end of May, with Irish economist, Philip Lane rumoured to be a front-runner. Sabine Lautenschlaeger will have served her term as vice-chair of the Supervisory Board of the Single Supervisory Mechanism on February 11.

Mario Draghi’s term as the ECB president only ends in October, but the jockeying to replace him has already started. His successor will be chosen after much horse-trading between the 19 eurozone members in the coming months.

For the top job, the tradition is to alternate between bankers from Southern and Northern Europe. At the moment, the first in line to succeed Draghi — an Italian — is Jens Weidmann, the head of the Bundesbank.

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An advocate of a minimalist role for the ECB, Weidmann has often disagreed with the majority on key policy decisions. In 2013, for instance, he opposed the unconventional bond-purchase scheme, the so-called quantitative easing, which helped boost the eurozone's recovery.

Erkki Liikanen, the former governor of the Bank of Finland, has emerged as another likely candidate. President of De Nederlandsche Bank Klaas Knot and current Governor of the Bank of Finland Olli Rehn could also be in the running.

Etienne de Callatay, the chief economist at Orcadia Asset Management in Luxembourg, believes that the next president is likely to be a "Northerner."

"It will indeed very probably be a 'Northerner,' maybe a German, but it is simplistic to oppose the 'laxism' of central bankers from the South with the 'virtuous' positions of the Northerners. After all, the French Jean-Claude Trichet was a very orthodox central banker, much more so than his German counterparts!" de Callatay told Sputnik.

New President May Inherit Old Troubles

Draghi assumed office as the ECB president in 2011 just as Europe was grappling with the consequences of the global economic collapse and the Greek debt crisis. Draghi pledged in 2012 to do "whatever it takes" to preserve the euro, and the first eurozone crisis was, ultimately, halted, but Europe did not emerge unscathed.

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Belgian lawyer Mischael Modrikamen, who defended the small shareholders in the bankruptcy trial of Fortis bank in Belgium and is now the president of the Popular Party (PP), believes that the 2008 economic crisis was not "settled in a structural way in each European country, but by a leap forward in the form of excessive government debts and unconventional monetary creation by the central bank."

"The European Union has only postponed the date of the inevitable bankruptcy of Greece by ten years by postponing its claims", Modrikamen told Sputnik.

The eurozone economic growth in 2018 was the slowest in four years, showing just how precarious the situation remained, years after the large shocks.

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According to French economist Charles Gave, "the situation is worsening in Europe."

"Italy, France and even Germany enter into a recession. There is a lack of confidence in France among entrepreneurs. To me, by the end of 2020, France will end up with an unemployment rate of more than 10 percent of the active population, a weight of the state in the economy — excluding payment of interest — at around 56 percent, a budget deficit of more than 4 percent of its GDP and a debt relative to this same GDP of about 110 percent", Gave told Sputnik.

Gave argued that the figures for France "from 2020 on" would be dangerously close to those of Greece in 2009.

"The worst part is that I could show very similar graphics for Germany and Italy, both of which appear to be in recession as well. This will make our recession even more severe… while Italy cannot afford a new recession. When could all this happen? By the end of May 2019, the economic disaster should be visible to everyone", Gave added.

Whoever replaces Draghi, appears likely to have their hands full.

The views and opinions expressed by the experts do not necessarily reflect those of Sputnik.

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