April 18, 2024

Merkel Signals Support for Italian to Lead E.C.B.

Mr. Draghi, an American-trained economist who is the governor of the Bank of Italy, finally won the crucial support of the German chancellor, Angela Merkel, after convincing her of his commitment to fiscal soundness.

Mrs. Merkel told the weekly newspaper Die Zeit, in an interview published Wednesday, that Mr. Draghi embodied German ideas about economic stability and that the government could support his candidacy to success Jean-Claude Trichet of France as head of the central bank.

Mrs. Merkel’s office confirmed the chancellor’s comments.

Her government found no plausible German candidate to propose after Axel Weber, former president of the Bundesbank, took himself out of the running, leaving the field to Mr. Draghi.

“He is very much in line with our ideas about stability and economic solidity,” Mrs. Merkel said of Mr. Draghi.

While markets will see her endorsement of Mr. Draghi as evidence that the European Union can overcome its internal politics to appoint the best-qualified candidate to a top position, her comments on Greece and its troubles will provide no relief for investors.

Speaking to reporters in Berlin, Mrs. Merkel indicated that there would be no decision on new help for Greece before June, at the earliest, after officials have compiled an assessment of the country’s economic situation.

“Greece is in focus,” she said. “Any kind of statement about what the situation there is and what we are going to do is something I can only do when I have the results of the mission on the table. I think it’s most important to go about this on a step-by-step basis.”

In that mission, officials from the European Commission, International Monetary Fund and European Central Bank will assess the reasons why the debt crisis in Greece has continued and will decide whether the government has honored its pledges to improve tax collection and to start a program to privatize €50 billion, or $71 billion, in state assets.

The officials will also examine whether the assumptions underlying the €110 billion E.U.-I.M.F. bailout of Greece last year were flawed. If they conclude that the country’s huge debt burden is strangling growth prospects, that would give euro zone countries little choice but to extend the term of the loans, reduce the interest rate, or start a process of voluntarily rescheduling some Greek government debt.

Ireland’s campaign to cut the interest rate charged on its bailout loans appears deadlocked, with France and Germany still determined to extract a concession from Dublin in return. At a summit meeting earlier this year, the new Irish prime minister, Enda Kenny, refused to agree to work toward creating a common corporate tax base for Europe, fearing that would ultimately threaten his country’s low 12.5 percent rate.

German lawmakers were to meet Wednesday to debate the country’s contribution to the euro zone’s third bailout, that of Portugal. Mrs. Merkel argued there had been “quite substantial progress” since 2010, when the debt crisis emerged.

“Obviously what we are doing is to lay the ground for the future,” she said “There is not as yet a satisfactory response as to how we deal with the sins committed in the past, but I think that the fact that we have looked those sins squarely in the face and tried to address them was already progress.”

German analysts are increasingly convinced that some form of debt restructuring or default in Greece is inevitable. Ferdinand Fichtner, senior research fellow at the German Institute for Economic Research in Berlin, argued that the sooner that takes place, the cheaper it would be for taxpayers.

“I think a haircut or partial default will be necessary, “ he said, “and my sense is that this is almost a consensus among German economists.”

“The problem over the last year is that private investors are being replaced by the European Central Bank and state-owned banks, and that will continue,” argued Dr. Fichtner. “If policy does not react quickly it will be more expensive for taxpayers. If we agree on a haircut later taxpayers will take a higher haircut,” he added.

Debt restructuring should take place before Mr. Trichet steps down at the E.C.B. to help preserve the credibility of the incoming chief, he added.

If anointed as expected in June, Mr. Draghi will begin his term with a reputation of being slightly less hard-line on inflation than Mr. Weber.

But Mr. Draghi, 63, who earned a doctorate in economics at the Massachusetts Institute of Technology, is certain to maintain the E.C.B.’s focus on price stability. He also enjoys an international reputation, in part because of his work as chairman of a panel that has been asked by the Group of 20 nations to find ways to avoid future financial crises.

Like Mr. Trichet, Mr. Draghi has the gravitas, stature and political savvy needed to interact on equal terms with European leaders. The crisis caused by debt problems in Greece, Portugal and Ireland has put extreme pressure on E.C.B. policy makers, who have often taken the lead in managing the crisis because of the difficulty that European Union leaders have in agreeing on fast action.

Jack Ewing reported from Frankfurt.

Article source: http://feeds.nytimes.com/click.phdo?i=d9408cde9a11bf5a03807a5c07a42954

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