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The economic slowdown in the eurozone is a boon for political decision-makers who are scrambling to succeed Mario Draghi at the central bank of the bloc – offering them the opportunity to boast of favorable political proposals and value their credentials.
The European Central Bank is preparing to cope with the slowdown by increasing its monetary stimulus, possibly by extending its commitment to keep interest rates at record levels after the end of 2019 and until 2020, well ahead of beyond the mandate of Mr. Draghi.
But the search for new policy options is open in the event that the staccato growth persists – and those who succeed Mr Draghi as President of the ECB want to show that they can provide them.
Since taking over the Eurozone's monetary guardian in 2011, Mr Draghi and his entourage have been acting aggressively to keep together an often disparate monetary union. The opposite of its dominance is that sometimes central bankers in the region have played a subordinate role in policy-making.
The imminent departure of the man who has shaped the monetary policy of the euro area over the past eight years offers the bank the opportunity to search for new ideas.
Just months before the decision of European heads of state at a summit in mid-June, some of the leading candidates are emerging from the Italian shadow to attract the attention of national capitals .
Among the main candidates, only Benoit Coeuré, a member of the bank's board of directors, was a key figure in the response to the crisis of the Draghi era.
Mr Cœuré, known for his understanding of the region's financial markets and the political dynamic between Berlin and Paris, is the favorite candidate of many ECB observers and would be an extension of Mr Draghi's ideas.
The board member of the ECB "has been instrumental in adding ideas to help the bank fight the region's economic problems," said Frederik Ducrozet, an economist at Pictet Wealth Management.
But he may not have the political backing to derogate from EU legislation that prevents board members from serving more than eight years on the bank's board of directors.
One of the main debates between the decision-makers is whether to compensate the banks for costs related to negative interest rates, an idea proposed this year by the Governor of the Bank of France, François Villeroy de Galhau. His pressure for a system of prioritization of negative deposit rates – currently at least 0.4% – has attracted the attention of economists.
By agreeing to return to banks some of the 7.5 billion euros they pay each year on deposits with central banks in the single currency area, the ECB could have more room to maneuver to reduce interest rates, says Mr. Villeroy de Galhau.
However, the idea is unpopular with members of the board of governors, including members of Draghi's inner circle. Klaas Knot, the head of the Dutch central bank who is also vying for the high-level post, has publicly criticized him.
Another stimulus option would be to let inflation exceed the target set below, but close to 2%, for a limited period, an opportunity mentioned by Mr Draghi this month. This idea was proposed by Olli Rehn, Director of the Bank of Finland.
Rehn's call for a review of how to maintain stable prices follows a similar initiative by the US Federal Reserve.
"The latest update of the ECB's monetary policy strategy took place in 2003 – before the financial crisis and other events and subsequent changes," said the governor of the Bank of Finland in March, adding that an examination would not call into question the intended inflation targets and instead focus on "guiding principles, key badumptions and tools for the implementation of monetary policy".
ECB observers see the idea of a revision as welcome, but believe that any change would take years.
"The redefinition of the bank's mandate for price stability, close to the 2% limit but below 2%, took many years to be officially approved in 2003," Ducrozet said. . "This kind of change could take even longer, or it could be that another major crisis is needed for the ECB to start such a leap forward."
Bundesbank President Jens Weidmann – a political hawk – and former President of the Bank of Finland Erkki Liikanen also played a key role in the restructuring of banking regulation after the financial crisis.
The nomination of Mr. Weidmann would mark a major change from the Draghi era, while Mr. Liikanen would offer greater political continuity.
"Whoever takes over will have big shoes to fill – credibility [he] Mr. Draghi was able to react decisively, "said Seamus Mac Gorain, head of global rates at JPMorgan Asset Management. "[They] It may be necessary to work harder to reach consensus and act less decisively, which is a concern given the economic and political turmoil on the euro area. "
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