Draghi looks on as Europe horse trading sends Guindos to ECB

Bloomberg

If Mario Draghi had to design the way his colleagues get picked, it would probably be a bit different from how it is now.
The European Central Bank president twice stopped short of praising the process for board appo- intments — aside from a mention of safeguards to independence — when asked this week about how his future vice president was chosen. Minutes later, the man himself,
Luis de Guindos, also spoke at the European Parliament as the first serving euro-area finance chief to be named by counterparts to the Frankfurt institution.
Every central bank endures its own appointments system, with corresponding strengths and weaknesses, but the ECB’s unique setup adds eccentricities. Of the six senior officials and 19 central bank governors on its Governing Council, each got there based on their passport, though with a commitment to not favour national interests. For critics, prioritising citizenship over expertise, particularly for the Executive Board, is a defect.
“The process is just flawed, from beginning to end,” said Charles Wyplosz, a professor at Geneva’s Graduate Institute. “The politicians that make these appointments see it as part of the bigger game of spoils for their compatriots.”
The ECB’s board is currently in an appointments cycle starting with the replacement of Vice President Vitor Constancio in May, and culminating late next year with Draghi’s retirement. Candidates proposed by euro-area members are vetted by finance ministers, and following input from lawmakers and the ECB, they are then appointed by heads of government. Spain openly campaigned for a post after a six-year absence, and Guindos will now replace
Constancio. European lawmakers, whose opinion isn’t binding, preferred Philip Lane, the Harvard-educated governor of Ireland’s central bank, but his country withdrew
his candidacy.
The Spaniard, a former Lehman Brothers banker who guided his economy through the region’s debt crisis, has raised eyebrows of Frankfurt officials cherishing the political autonomy of the ECB, an institution modeled on Germany’s Bundesbank. Guindos insisted to lawmakers this week that he’ll defend its independence. “It’s a big institutional mistake,” Algebris Investments Chief Executive Officer Davide Serra told Bloomberg Television this month. “This idea that you go from politician to the ECB board, I think it’s very dangerous.” Draghi declined to comment on Guindos, telling lawmakers that the ECB will issue its own assessment on March 8.
“Independence of the ECB is enshrined in the treaty” of the European Union, he said.
“It would be protected by the treaty, which goes beyond any sort of personal profile. And the candidate for the position will be assessed for his competences.”
The vice presidency episode is the prelude to a tussle for the bigger prize of Draghi’s job. The first Italian to be ECB president will retire in October 2019. Germany has never held the post despite being the bloc’s largest economy, making the Bundesbank’s Jens Weidmann a contender. With ECB officials Benoit Coeure and Peter Praet also leaving next year, the stage is set for horse-trading among governments.
“The board isn’t a collection of states, it’s a team of competent people who must not be responding to their local constituencies,” said Carlo Alberto Carnevale Maffe, a professor at the SDA Bocconi School of Management in Milan, who cites the Bank of England system as a better example. In the UK, they don’t discuss if a deputy governor “should be Scottish or whether the Welsh should be given a minor role,” he said.