ECB Appointments

In expectation that the leadership of the ECB would be decided by what is widely characterized as ‘horse trading’ (and perhaps as much by the nationality of the candidates as their competence), we invited our European panel of economic experts to express their views on the process and its potential effects on the quality and independence of monetary policy-making. We asked the experts whether they agreed or disagreed with the following statements, and, if so, how strongly and with what degree of confidence:

a) Selecting candidates for membership of the ECB Executive Board based primarily on nationality ahead of competence is likely to have a negative effect on the quality of monetary policy in the Eurozone.

b) Although the central bank can never be an entirely technocratic institution, the selection process for the ECB President and members of the Executive Board is significantly worsened by intergovernmental trade-offs involving appointments to other European institutions.

Nationality, competence and the quality of monetary policy

Of our 50 experts, 40 participated in this survey. On the first statement, there was a strong consensus in agreement. Weighted by each expert’s confidence in their response, 41% strongly agreed, 54% agreed, 3% were uncertain, and 3% disagreed. In the short comments that the experts are able to include when they participate in the survey, there is an indication of some of the nuance in their views.

Some agreed strongly with the proposition that putting nationality over competence could have a negative impact. For example, Jordi Gali at Universitat Pompeu Fabra said:
‘It is a self-evident proposition. Nationality seems as good a criterion as weight for the issue at hand.’ Christopher Pissarides at LSE added: ‘Using nationality as a selection criterion is silly. Competence in monetary policy has nothing to do with nationality.’

Karl Whelan at University College Dublin emphasized the importance of competence: ‘ECB President is a key job and much has depended in recent years on Draghi’s decisions. You need the right person for the job.’ Nicholas Bloom at Stanford made an analogy with a quite different arena: ‘Barcelona does not pick its team based on being born in Barcelona – if it did it would not win anything. The ECB should also pick the best.’ So too did John Van Reenen at MIT: ‘See family firms work: choosing leaders based on connections rather than talent generally leads to disaster.’

While Peter Neary at Oxford agreed with the statement, he warned that: ‘”Competence” should be interpreted broadly: commanding academic respect but also with personal, political and administrative skills.’ Pol Antras at Harvard also agreed, but noted: ‘Though some geographical diversity in the Board is certainly a desirable goal.’ In a similar vein, Franklin Allen of Imperial College London commented: ‘Competence is clearly extremely important. However, in a severe Eurozone crisis, understanding key countries’ position may also be important.’

Lubos Pastor of Chicago Booth, who responded to the statement by saying that he was uncertain, expressed an important caveat to the majority view that nationality should be less significant in the selection process: ‘Ignoring nationality could undermine the ECB’s democratic legitimacy in voters’ eyes, which could eventually jeopardize the ECB’s independence.’

Horse trading

The second statement focused on whether ECB selection processes are harmed by intergovernmental trade-offs involving appointments to other European institutions. While there remained a substantial majority in agreement, there was considerably more uncertainty: weighted by each expert’s confidence in their response, 37% strongly agreed, 44% agreed, 17% were uncertain, and 2% disagreed.

Jordi Gali was again in strong agreement: ‘This is just an additional proof that, whether we like it or not, the EU is little more than intergovernmental agreement.’ Karl Whelan added:
‘”Significantly worsened” might be overstating it but this kind of horse trading for top jobs certainly doesn’t help.’

While Christopher Pissarides agreed with the statement, he cautioned: ‘Although the best person should always be selected, having many key institutions headed by the same nationality is fraught with dangers.’ Franklin Allen, who responded that he was uncertain, made a similar point: ‘If all the positions were held by male northern Europeans, it would not be good for the democratic legitimacy of the Union.’

Lubos Pastor continued that theme of legitimacy: ‘Ignoring nationality could undermine the ECB’s democratic legitimacy. Also, most countries have someone who could do a good job leading the ECB.’ And Jan Pieter Krahnen of Goethe University Frankfurt, who disagreed with the statement, concluded: ‘The phrase overstates the effective influence of trade-offs. An appointment balance may help to achieve mutual recognition, given quality.’

All comments made by the experts are in the full survey results.

Romesh Vaitilingam
@econromesh
July 2019