Will German central bank uproar sway ECB presidency?

5th September 2010, Comments 0 comments

The uproar sparked by a German central banker's remarks about Jews and Muslims could muddy the waters for Bundesbank chief Axel Weber's bid to become head of the European Central Bank, commentators say.

Analysts believe the controversy is a fleeting issue for Weber however, and some say he might have done himself more harm in May with outspoken criticism of ECB purchases of public debt as part of a European Union (EU) rescue plan.

In the end, Weber's chances of getting the top ECB job probably depend on staunch backing from the German government, and that might have been reinforced by his handling of the "Sarrazin affair."

On Thursday, Weber and the Bundesbank board called for the dismissal of Thilo Sarrazin, a Bundesbank director who claims Muslim immigration and a high birth rate among Germany's Turkish residents will undermine Europe's biggest economy.

Sarrazin, who has just published a book, also told an interviewer that "Jews share a certain gene," reviving the spectre of claims used to justify their persecution by the Nazis.

Only Germany's president can dismiss a central bank board member however, and Christian Wulff seems set to take the unprecedented action following the bank's recommendation.

Sarrazin has made provocative remarks about immigrants in the past and has fueled an impassioned debate on German attempts to integrate minorities.

"A raw nerve has been touched. There is a lot of social psychology involved here," said Irwin Collier, an economics professor at the Free University in Berlin.

Some speculate about the affair's affect on Weber, 53, a leading candidate to become ECB president when Jean-Claude Trichet steps down in October 2011.

"Weber has not performed well on the matter -- the turbulence has revealed his lack of political feel," the business daily Handelsblatt said.

"Weber seems passive and driven by recommendations from politicians," the Financial Times Deutschland added.

Trichet and German Chancellor Angela Merkel have both expressed confidence however in Weber's independence and ability to manage the situation.

"He has done as people would have expected," Barclays Capital economist Thorsten Polleit said after the Bundesbank decided to recommend Sarrazin's dismissal.

"The government's backing will not have changed after this decision, rather the contrary," ING senior economist Carsten Brzeski told AFP.

"Weber clearly knows that his stock depends on the favour of Angela Merkel and the present government," Collier added.

Merkel has not sought high EU posts for German candidates and many feel she has reserved political capital for Weber's ECB bid.

The next president will be chosen by eurozone heads of state in a few months and with Germany's economy acting as a locomotive for the rest of the 16-nation bloc, Weber's chances would also appear to be on track.

Foreign reaction to the Sarrazin controversy has not laid blame on the Bundesbank president, "and I think that's what matters," Polleit told AFP.

"I think outside of Germany this has no further significance," Collier added.

In May however, Weber publicly criticized ECB purchases of government bonds in support of heavily indebted eurozone states, a rare move by a key governing council member that earned him sharp rebukes.

"It was probably counterproductive, that's for sure," Brzeski said.

But he added that Weber "is much more pragmatic" than many believe, and that by the time the ECB presidency is settled, "people will have forgotten" or at least have decided to forgive.

Jean Pisani-Ferry, director of the Breugel research institute in Brussels, was not sure all will be forgotten but was also not convinced Weber's action "will weigh decisively in the decision."

A key factor will be France, which Brzeski said could face deteriorating public finances next year and might "want to keep the Germans as friends."

"I hear the criticism but simply given the political forces I would still think that it's going to be Weber" at the head of the ECB, he concluded.

© 2010 AFP

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