ECB Head-to-Head: Spain Battles Ireland for the Vice Presidency
The two contenders for the European Central Bank’s second-highest post are in for a grilling on Wednesday.
Spain’s Luis de Guindos and Ireland’s Philip Lane will come before the European Parliament for informal hearings as they pitch for the vice presidency. The winner starts in June and gets a seat at the top table as the ECB maps a path out of emergency stimulus.
Parliament doesn’t get to choose the final nominee, and nor does the central bank — that honor falls to euro-area finance ministers, with a signoff by heads of government. But legislators get to scrutinize two men (no women were put forward, despite a specific request by lawmakers) with very different backgrounds: the crisis-honed minister and the academic central banker.
Luis de Guindos
Spain’s 58-year-old economy minister is seen as the favorite to replace Portugal’s Vitor Constancio as vice president, but he’s an unusual choice. Euro-area finance chiefs have never before selected one of their own for the ECB’s Executive Board.
That fact alone has raised concerns at the ECB, whose freedom from political independence is set into law. Guindos also lacks central-banking experience.
What he does have is a history of pushing through the economic restructuring that the ECB says is vital to the currency bloc’s long-term health. In his memoir, he described sleepless nights and bust-ups with the European Commission in 2012 as he negotiated Spain’s 41 billion-euro ($50 billion) bailout and reform package.
Spain lost its Executive Board seat in the same year, when Jose Manuel Gonzalez-Paramo’s term ended and finance ministers declined to back a Spanish replacement. Guindos said the move was motivated by mistrust over economic policies under the Socialist government before the crisis, but that Germany’s then-Finance Minister Wolfgang Schaeuble assured him the next available vacancy would go to Spain.
Guindos’s career has had some notable setbacks. He ran the Iberian unit of Lehman Brothers Holdings Inc. right up until the U.S. bank crashed in 2008. In 2015, he ran to lead the Eurogroup of finance ministers but lost to Jeroen Dijsselbloem of the Netherlands.
Unlike Lane, he lacks an economics PhD. He has also kept his monetary views largely to himself until now. But in an interview with Les Echos this week he toed the line that policy is set for the euro area as a whole, stimulus has unquestionably boosted growth, and quantitative easing and negative interest rates are temporary.
“Guindos’s nomination to become vice president would clearly be a political favor for Spain,” said Angel Talavera, euro-zone economist at Oxford Economics in London. “It’s difficult to say at this point whether he would be a hawk, but he might go a little bit more in that direction than his predecessor.”
The hopes of Ireland, the only founding member of the euro area never to have had a seat on the ECB’s board, rest on the shoulders of its central-bank governor, a 48-year-old economics professor with a reputation for calm pragmatism.
Schooled at Blackrock College, one of Ireland’s leading fee-paying schools, Lane earned his doctorate at Harvard University in 1995. He became an assistant professor of economics and international affairs at Columbia University before returning to teach at Trinity College in Dublin.
As central-bank chief since November 2015, he’s been on the ECB’s decision-making Governing Council, making him party to decisions to keep extending QE while policy makers wait for inflation to pick up. He almost always stays close to the ECB’s official line in public.
While widely praised by economists, he has been criticized by Irish politicians amid accusations that the central bank was slow to react to a mortgage-overcharging scandal. John McGuiness, chair of the Irish parliament’s finance committee, told Lane he was “hoodwinked” by bankers.
Still, his reputation as a central-banking brain was bolstered when ECB President Mario Draghi asked him to head up a high-powered group looking at designing European safe assets by pooling sovereign bonds from euro-area member countries.
The proposal he unveiled this year was drawn from an informal collection of economists he attended, known as the Euronomics Group, who hashed out ideas during weekly Skype calls.
“Central banking tends to attract ideologues; he’s not ideological,” said Patrick Honohan, his predecessor at the Irish central bank, who has known Lane since the mid-1990s. “He’s very pragmatic, innovative.”