French hold out for their man

Date: 20/02/1997

With the European Central Bank due to come into being in March 1998, Tim Jones advises Wim Duisenberg (left) not to start measuring up the curtains for the president's office just yet.

“I would not be at all surprised if Wim Duisenberg only served nine months in Frankfurt.”

This stark view expressed by a member of the EU's powerful monetary committee is shared throughout Europe's economic policy establishment.

Although they do not say it in public, many are convinced that the veteran chief of the Nederlandsche Bank will be replaced at the last minute as the first president of the Frankfurt-based European Central Bank (ECB).

He will, they all say, be eminently qualified for the job. After all, he will take over as president of the European Monetary Institute (EMI), the embryo ECB, from July. He has authority, intellectual grasp and - above all - a track record in the Netherlands of sound monetary policy performance and a currency which has managed to out-deutschemark the deutschemark.

Nevertheless, his chances of becoming the ECB's first president from March next year are getting slimmer by the day for one simple reason: he is not French.

Paris has already fired its first warning shot across Duisenberg's bows. At the Dublin summit in December, French President Jacques Chirac gave his endorsement to Duisenberg's tenure at the EMI, but then ostentatiously stated for the record that this was by no means to be seen as approval of the Dutchman's candidacy for the ECB post.

One thing should be made absolutely clear at this stage - there is no sweetheart Franco-German deal to put a Frenchman on the ECB throne.

This misapprehension began after Paul Marchelli, a member of the board of the Bank of France, gave an interview in which he implied that such a deal had been struck back in 1993.

In return for allowing the ECB to be based in Frankfurt, or so the story went, Prime Minister Edouard Balladur had won a concession from the Germans that a Frenchman would be its first head.

Now Marchelli tells a slightly different story. “At the beginning of 1993, it was assumed by everyone in the media and by the Balladur government that the first president of the bank would be French,” he says.

But was there a deal? “I am not privy to the secrets of the government, only to those in monetary policy circles,” says Marchelli. “I cannot tell you with certainty that there was an agreement.”

In other words, 'I don't know'.

Yet simply to look back to the wheeler-dealing of October 1993, when Belgian Prime Minister Jean-Luc Dehaene employed all his legendary skills as a political fixer to find homes for a clutch of newly created European institutions, rather misses the point.

Even if the French have not yet managed to negotiate a deal to put their man on to the 35th floor of Frankfurt's Euro Tower, they still have a good chance of doing so.

After all, Paris has an uncanny knack of getting its candidates into key institutional posts. “When the French set their eyes on an international position, they usually get what they want,” says a senior European monetary official.

Just take a look around the world.

First, to Washington. The Bretton Woods conference of 1944 created two great institutions: the International Monetary Fund and the World Bank. Frenchmen have held the levers at the IMF for the past two decades. Michel Camdessus has just embarked on his third term as managing director of the IMF after a decade in the job, which he took on from Jacques de Larosière.

De Larosière now heads the London-based European Bank for Reconstruction and Development (EBRD), which was created as a plaything for Jacques Attali, a former aide to François Mitterrand. When Attali was forced out, former European Commissioner Henning Christophersen threw his hat into the ring but never had a hope. Only Frenchmen needed apply.

As if that were not enough, Jean-Claude Paye has only recently quit as secretary-general of the Organisation for Economic Cooperation and Development (OECD) after 11 years at the helm.

French governments have long believed that getting one of their nationals into an international posting gives them control over it. Little seems to have changed despite all evidence to the contrary.

“If we want a single currency that is strong and accepted, then it is essential that not all of its business is conducted by the Germans,” says Marchelli. “The EMU hard core is regarded by many people as being the deutschemark-zone plus France. For this reason, it would make sense to have a Frenchman heading the bank to ensure balance.”

So far, speculation about possible French presidents has tended to concentrate on Bank of France President Jean-Claude Trichet and former European Commission President Jacques Delors.

But Trichet is felt to be too politically minded by the Germans, while Chirac fears that he is too independent of political influence. As for Delors, his candidacy would be over the Bundesbank's dead body given his history of political interference and his view of job creation as a higher priority than price stability.

The latest name circulating in monetary circles is that of Jacques de Larosière himself. On the face of it, he has a lot going for him. The president of the ECB has to be appointed “from among persons of recognised standing and professional experience in monetary or banking matters”.

De Larosière has this in spades. He served as director of the French treasury, governor of the Bank of France and chief of the IMF before going to the EBRD, where he rescued its good name and turned in a profit. Like Duisenberg, he is well known in central banking circles and is trusted by the Germans. Only his age counts against him, since he will be 68 when the ECB is due to be established early next year.

De Larosière may fit the bill. But if he does not, this does not mean Chirac will give up.

As the run-up to last December's Dublin summit showed, the French want economic and monetary union, but they are becoming increasingly concerned about the prospect of a euro allemand. The last thing they want is a German yes-man - which is how they characterise Duisenberg - running monetary policy for eight years.

But what makes them think that having De Larosière, Delors, Trichet or anyone else in Frankfurt would make any difference?

The evidence suggests otherwise. Did Delors' ten-year mandate at the Commission stop utility liberalisation, the rise of consumerism and a clamp-down on subsidies? The EBRD, under two successive French presidents, has turned into a classic development bank with conservative investment policies - exactly what Attali did not want.

The structure of the ECB itself will ensure that the powers of the president will be checked and balanced.

He will be part of an executive board of (probably) six people, which will carry out day-to-day monetary policy in accordance with guidelines and decisions laid down by the ECB's governing council. The council will include all the members of the executive board plus the governors of the national central banks, and each council member will have one vote. Decisions will be taken by a simple majority and, in the case of a tie, the president will have a casting vote.

The Germans may take one of two views. On the one hand, they may decide that a Frenchman with banking experience can be trusted and that fighting to the death for Duisenberg is not worth the candle.

But what is looking more likely is that Bonn will draw a line in the sand. It is one thing to hand over an office at the IMF, OECD or EBRD to the French, but letting them run monetary policy in the euro-zone may be too much for the Germans to stomach.

The temptation to select the ECB's first president from among the hardest of the hard core may be too great for Bonn to resist.