New Bundesbank president faces tough choices ahead

Good morning and welcome to Europe Express.

We start with sad news: David Sassoli, the president of the European parliament, died in hospital in his native Italy overnight. The 65-year-old was admitted on December 26 after a “dysfunction of his immune system”, his spokesman said yesterday.

The Socialist’s term in office was ending this month after two-and-a-half years in a power-sharing deal with the centre-right European People’s party. Expect tributes from across the political spectrum today.

Frans Timmermans, European Commission vice-president, tweeted: “David Sassoli, EP president and dear friend, has died. I’m at a loss for words. His kindness was an inspiration to all who knew him. My heartfelt sympathies to his family and all his loved ones. Addio amico mio.”

We will have more on FT.com later and in tomorrow’s Europe Express.

Meanwhile in Frankfurt, a low-key succession ceremony with significant consequences for the eurozone is taking place today, as Jens Weidmann is handing over his baton to his former colleague from the Bundesbank, Joachim Nagel. We’ll look at the two personalities and what challenges lie ahead for Nagel.

In other central bank news, outside the eurozone, we’ll explore why outgoing Nato chief Jens Stoltenberg is finding himself in choppy waters as he seeks to secure a seamless transition to Norges Bank in October when his term at the defence alliance runs out.

And on the Brexit front, the UK’s new negotiator and foreign secretary Liz Truss has her work cut out for her as the Conservatives’ ally in Northern Ireland, the DUP, is hardening its position ahead of elections in May.

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No more Mr Nein

Jens Weidmann will bow out as president of the Bundesbank today with a final warning about the dangers of “fiscal dominance” in the eurozone as he hands over the reins of Germany’s central bank to Joachim Nagel, writes Martin Arnold in Frankfurt.

The risk that government debts have risen so high in the coronavirus pandemic that the European Central Bank may find it politically impossible to raise interest rates to tackle soaring inflation is one of many hot topics waiting in Nagel’s in-tray.

He will also confront worries about German inflation recently hitting a 30-year high of 6 per cent, while supply chain bottlenecks are throttling output in the country’s vast manufacturing sector and renewed coronavirus restrictions mean the economy is on the cusp of recession.

Nagel, a 55-year-old former executive at the Bank for International Settlements, worked at the Bundesbank for 17 years before leaving in 2016 and was chosen by Germany’s new government to take over after Weidmann decided a decade in the job was long enough.

The position — running an institution with more than 10,000 staff and a €2.5tn balance sheet — is somewhat unusual because the Bundesbank gave up many of its main monetary policy powers when the ECB was created more than 20 years ago.

However, as Bundesbank president, Nagel is a member of the ECB’s 25-person governing council and, as a representative of the eurozone’s biggest economy, will play a key role in setting ECB policy.

At a “virtual ceremony” today, Weidmann will welcome Nagel to the job while warning him to watch out for monetary policy being held hostage to fiscal policy. This has been one of the outgoing Bundesbank boss’s biggest concerns as vast ECB bond-buying has kept borrowing costs extremely low even as government debt levels have risen sharply.

Nagel, who has previously voiced similar fears, may also sense concern about Germany being isolated in the vital debate over how to reform the EU’s fiscal rules after French president Emmanuel Macron and Italian prime minister Mario Draghi wrote a Financial Times article calling for a revamp to spur investments and drive long-term growth.

ECB president Christine Lagarde will also speak at today’s event and is likely to be generous in thanking Weidmann for his constructive contribution in shaping policy, while welcoming Nagel to the fray.

Lagarde may not see eye-to-eye with Weidmann on many issues, but they seemed to build a more constructive relationship than he had with her predecessor, Draghi, who dubbed the German nein zu allem — no to everything.

The honeymoon period for Nagel will not last long before he has to decide where he stands both in the debate on how fast the ECB should withdraw its stimulus to counter high inflation and on whether Germany needs to be more assertive in reshaping the EU’s fiscal rules.

Norwegian decisions

This could be a big week for Jens Stoltenberg: Not only is the Nato secretary-general handling discussions with Russia over the prospect of another conflict in Ukraine, but Stoltenberg could find out at the end of the week whether or not he has a new job, writes Richard Milne, Nordic and Baltic Correspondent.

The former Norwegian prime minister is one of two serious candidates to become central bank governor in the Scandinavian country with a decision possibly to be announced on Friday. His term as Nato chief runs out in October.

The possibility of Stoltenberg returning to Oslo in the country’s top economic job has brought a strong political outcry, particularly among his former opponents on the centre-right. Stoltenberg is a close friend of current centre-left Norwegian prime minister Jonas Gahr Store, who has recused himself from the discussions over the governor.

Siv Jensen, the former finance minister and ex-leader of the populist Progress party, was the latest to warn that giving the central bank job to a political heavyweight was a “significant threat” to Norway’s reputation and the credibility of its monetary policy.

Instead, she and others on the centre-right are pushing the candidature of Ida Wolden Bache, the current deputy governor who would be the first woman in the role if confirmed.

Proponents of Bache, a former head of Norges Bank’s monetary policy department, say her knowledge of economic matters is unimpeachable. But those pushing Stoltenberg, a former finance minister with a degree in economics, underscore his suitability for the other important job of the governor: overseeing the $1.4tn oil fund, the world’s largest sovereign wealth fund.

So it was piquant that newspaper Aftenposten on Sunday revealed Stoltenberg had discussed the governor role twice with Nicolai Tangen, the former hedge fund manager who now runs the fund. Tangen has told colleagues he sees no problem with Stoltenberg taking the job.

Still, Norway’s political machinations could turn out trickier to navigate than the geopolitical stakes of Nato-Russia talks.

Chart du jour: Brexit effect

One year after Brexit, bankers and officials say that instead of a big-bang shift of swaths of financial sector business from the UK to the EU that some predicted, the City of London is enduring a slow puncture that will take years or decades to play out. (More here)

Tricky for Truss

Getting a deal on post-Brexit trade arrangements for Northern Ireland will be tricky enough for Liz Truss. Getting one that will please the Democratic Unionist party as the region prepares for key elections on May 5 may be an even taller order, writes Jude Webber in Dublin.

Sir Jeffrey Donaldson, who is battling to beat Irish republicans Sinn Féin and keep the DUP at the helm of the region’s power-sharing executive, initially made positive noises after the UK foreign secretary wrote in a newspaper article that London wanted “no checks or documentation for goods moving from Great Britain to Northern Ireland”.

But after a meeting with Truss, Donaldson demanded a timetable for the UK to deliver on its key demands regarding the so-called Northern Ireland Protocol. “We have made it clear to the government that we will not be implementers of Protocol arrangements,” he said.

That is a reference to unionist attempts to veto protocol checks as raised by Edwin Poots, the agriculture minister and former DUP leader. Under the 1998 Good Friday peace agreement and its implementing legislation, cross-community support is required for executive decisions.

But what Sinn Féin leader Mary Lou McDonald called the DUP’s “narrow electoral positioning” may end up being a political stunt because the EU Withdrawal Agreement has supremacy over domestic law.

In any case, Northern Ireland’s fraught politics will certainly not ease Truss’s negotiation strategy when she meets her EU counterpart, Maros Sefcovic, for talks on Thursday and Friday at the Foreign Office’s country estate in Kent. (Read more here.)

What to watch today

  1. Economy ministers from Lithuania and Taiwan hold a joint online news conference

  2. French president Emmanuel Macron meets European Council president Charles Michel to discuss the French EU presidency priorities

Notable, Quotable

  • To be continued: Russia and the US held talks in Geneva for nearly eight hours yesterday which ended with no breakthrough, but also with no breakdown. Russia has warned of renewed military action against Ukraine if its red lines are not met.

  • Tech lobby: Google is making a last-ditch effort to water down the EU’s forthcoming regulation on Big Tech with a flurry of advertising, emails and targeted social media posts aimed at politicians and officials in Brussels, as the company fears that the legislation will affect its bottom line.

  • Dutch flare-up: The Dutch government has expressed its irritation at Berlin’s requests for the Netherlands to increase its natural gas extraction and supply Germany with more gas when the Green party in Berlin has blocked any further expansion of Germany’s own gasfields in the North Sea, writes Handelsblatt.

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Today’s Europe Express team: martin.arnold@ft.com,
richard.milne@ft.com, jude.webber@ft.com, valentina.pop@ft.com. Follow us on Twitter: @MAmdorsky, @rmilneNordic, @jude_webber, @valentinapop.

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