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Wednesday, 13 February, 2002, 18:15 GMT
Succession scramble at ECB
Jean-Claude Trichet
Mr Trichet is seen as one of the world's star bankers
By BBC News Online's James Arnold

For those few who enjoy the subtleties of central banking politics, a glacial but important semantic change has occurred over the past couple of years.

Jean-Claude Trichet, head of the Banque de France, has gone from being called "the next president of the European Central Bank" to now just being "the leading candidate for the ECB presidency".

Two years ago, Mr Trichet appeared the inevitable successor to Wim Duisenberg, who announced his resignation last week.

Spain, which currently holds the presidency of the European Union, has just asked member countries to nominate their candidates for the ECB's board, ahead of the Barcelona economic summit on 15-16 March.

And it is already starting to become clear that there will be, if not exactly a race, at least some sort of quiet tussle for the top job.

[Click here for a guide to the runners and riders for the ECB's top job.]

Second best?

Mr Trichet is the man who many believed should have won the ECB job in the first place.

Wim Duisenberg
Mr Duisenberg won kudos after the euro launch
Seen as one of the world's most brilliant central bankers, he enjoys a respect among the financial community that the more awkward Mr Duisenberg could only envy.

His failure to clinch the job in 1998 was the result of a political stitch-up, when Germany got cold feet over the idea of having a Frenchman at Europe's economic helm, and insisted on the neutrally Dutch Mr Duisenberg.

At the time, there was an agreement that Mr Duisenberg would step down halfway through his term, to make way for Mr Trichet, and keep the Franco-German EU axis trouble-free.

For quite a while, Mr Duisenberg seemed to be prepared blithely to ignore this agreement, especially since the smooth transition to cash euros this year boosted his popularity.

Duisenberg's deal

Mr Duisenberg's decision to step down after all ought to have revived the original agreement.

But no one really dares to talk about Mr Trichet's accession as a foregone conclusion.

That has something to do with the shifting sands of European politics, and in particular the attitude of those countries outside the Franco-German axis.

Somewhat more confident in their role than they were four years ago, middle-ranking eurozone members such as the Netherlands and Spain are less likely to feel bound by the wishes of France and Germany.

Under a cloud...

A bigger headache by far for Mr Trichet is the current investigation into irregularities at Credit Lyonnais, one of France's biggest banks.

The ECB headquarters in Frankfurt
The ECB is set for a shake-up in the next few years
During the 1980s, the then state-owned Credit Lyonnais lent money exuberantly, plunged into the red when many loans turned bad, and then cooked the books to disguise its losses.

Cleaning up the bank, which involved transferring much of the bad debt into another entity, is estimated to be costing the French taxpayer as much as $30bn.

Credit Lyonnais' lending record, and the process by which it has been restructured, is now under investigation, and Mr Trichet, a top Treasury official at the time, is one of the key witnesses.

If the Credit Lyonnais affair mutates into a court case, and Mr Trichet is involved as a witness or defendant, his chances of taking on a demanding new job next year will be nil.

... but still in the lead

Assessing the chances of that happening is hard.

Most pundits suggest - with a little world-weary cynicism - that the French government will contrive some way of freeing up Mr Trichet, who remains their preferred candidate.

The Germans have already made it clear that the ECB presidency is in France's gift this time around, so that should make Mr Trichet's passage to the top reasonably clear - depending, of course, on the unguessable machinations of the 10 other, smaller eurozone members.

The process of hammering out the succession, as well as a host of other procedural and administrative issues, will get formally under way in Barcelona, but is extremely unlikely to reach a conclusion there.

For his part, Mr Trichet is admirably reticent on the subject of the ECB succession, confining himself solely to praise for Mr Duisenberg.

"We are all extraordinarily supportive of him," he told the BBC's Mary Gahan.

Musical chairs

Supportive or not, Mr Trichet should eventually get his job.

But that does not mean that the selection process will be boring.

First, the ECB is not just looking for a new president.

It is also seeking, in piecemeal fashion, to replace all its executive board members, whose terms are starting to come to an end.

First to leave will be Christian Noyer, the bank's respected vice president, who is due to step down in May.

As the only Frenchman on the ECB's board, Mr Noyer will be keenly missed, and his departure will strengthen the resolve of Mr Trichet's supporters.

Big Brother, ECB style

The problem with this is that it threatens to set off a series of mini succession rows over the next few years, as each board member comes up for eviction.

Some states, notably Belgium, are hoping to stitch together a package deal in Barcelona, which will decide the future disposition of all six executive board seats.

With 12 eurozone members, and only six seats, competition will be fierce; the current members are Dutch, French, German, Italian, Spanish and Finnish, leaving six countries gasping for inclusion.

The Greeks have already made it plain that they want their man, Bank of Greece governor Lucas Papademos, to take Mr Noyer's job.

Reform in the air

These sort of turf struggles interest only genuine euro-enthusiasts.

But the result will have far wider implications.

Great changes are planned at the ECB, whose rules and practices are reckoned in need of adjustment, especially in view of the three-year decline of the euro.

The French have made no secret of their plans for reform: a paper published recently by European trade commissioner Pascal Lamy argued in favour of adopting the Bank of England as a model - slimmer administration, more transparent workings, and a more realistic inflation target.

Economic advisers to French Prime Minister Lionel Jospin have commissioned a second paper on ECB reform from two independent economists.

Due in the summer, the report is likely to recommend major changes to the ECB strict policy of targeting inflation, rather than aiding growth - a policy that many in the EU blame for the bloc's current economic stagnation.

After missing out in 1998, France does not intend to lose the initiative this time around.

Runners and riders

Mr Trichet is the firm favourite, but he has his competitors. Here are some of the leaders, in no particular order.

  • Sirkka Hamalainen is the most senior Finn at the ECB, and a member of the bank's executive board. She is highly regarded, and seen as an expert on the markets. But the expiry of her term fits awkwardly with Mr Duisenberg's leaving date, which may rule her out.
  • Otmar Issing is another board member, and is Germany's representative. Aside from Mr Trichet, he is one of the few candidates to have the personal skills to do the top job. But his nationality would seem to argue against him.
  • Jean-Claude Juncker, the prime minister of Luxembourg, is the only politician whose name has been mentioned in connection with the ECB. He is believed to have been sounded out about working in Frankfurt before, and has certainly been more voluble on the subject of monetary policy than his rivals. It is hard to imagine him gathering enough support, however, and he remains the rank outsider.
  • Tomasso Padoa-Schioppa, an executive board member and the ECB's leading Italian, is the only southern European candidate. Although well respected, and with a sound career at the Bank of Italy behind him, he is unlikely to appeal to the cautious northern Europeans.
  • Pascal Lamy is Europe's commissioner for trade, and therefore one of the world's most visible economic officials. He is also politically well-connected, and has displayed an interest in monetary policy. His problems are that he may be too much the politician, and that Mr Trichet has first call on the French nomination.
  • Jean Lemierre, head of the European Bank for Reconstruction and Development (EBRD), is France's number-three reserve. He has done well to redeem the EBRD's once-shabby reputation, and is seen as going places. But unless Mr Trichet and Mr Lamy both disappear, those places may not include Frankfurt.

[Return to the story]

Jean-Claude Trichet
talks to the BBC's Mary Gahan about the euro and the ECB
See also:

07 Feb 02 | Business
Wim Duisenberg's legacy
07 Feb 02 | Business
Duisenberg to quit ECB
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