Luxembourg’s Yves Mersch, the euro region’s longest-serving central banker, was named to the European Central Bank’s Executive Board in a victory for German- style monetary rigor.
Mersch, 62, was appointed by euro-area finance ministers at a meeting in Brussels yesterday, Guy Schuller, a spokesman for Luxembourg Prime Minister Jean-Claude Juncker, told Bloomberg News. He will move into the slot vacated by Spain’s Jose Manuel Gonzalez-Paramo, stripping Spain of its claim to a permanent seat on the Frankfurt-based central bank’s six-member Executive Board. Juncker chairs meetings of euro finance chiefs.
After five months of wrangling, Mersch defeated a Spanish nominee, Antonio Sainz de Vicuna, head of legal services at the ECB, as well as Mitja Gaspari, former head of Slovenia’s central bank. As Luxembourg’s representative on the ECB’s wider policy- setting Governing Council, Mersch has earned a reputation as an inflation hawk. He is the only central banker in office continuously since the euro debuted in 1999.
“Mersch will do his bit to reinforce the reputation of the ECB as an inflation fighter,” said Christian Schulz, senior economist at Berenberg Bank in London. “That could make markets nervous at times.”
The euro has fallen 4.7 percent against the dollar over the past two months as governments struggled to contain the region’s debt crisis and economic growth faltered. Mersch, who is head of Luxembourg’s central bank, said in a report on June 14 the euro- area economy probably contracted in the second quarter.
ECB President Mario Draghi signaled yesterday policy makers may be open to another interest-rate cut and said council members “will do everything to maintain price stability -- from both sides.” The central bank last week cut its benchmark interest rate by 25 basis points to 0.75 percent, a record.
With the ECB now run by Italy’s Draghi with Vitor Constancio of Portugal vice president, northern countries backed Luxembourg’s candidate as a way of arresting a perceived shift of power toward southern Europe.
Mersch “is extremely knowledgeable and highly respected,” ECB council member Ewald Nowotny, who is also head of Austria’s central bank, told reporters in Brussels. “I am very glad that finally this decision has been taken.”
Spain’s leverage to push through its lower-profile candidate was hampered by its pursuit at the same time of as much as 100 billion euros ($123 billion) in aid for its banks. Gonzalez-Paramo’s term ended on May 31.
Luxembourg, the European Union’s richest country in per capita terms, is one of four euro-zone countries to emerge from more than two years of fighting the debt crisis with its AAA credit rating intact.
Mersch’s arrival will leave two top-rated countries, Luxembourg and Germany, with board representation, while the remaining seats are held by Italy, Portugal, France and Belgium. The six board members are joined by the 17 heads of national central banks to set interest rates.
Before Mersch can begin his term, all 27 EU governments must sign off on his appointment and the European Parliament will hold a hearing and non-binding vote. The parliament has no power to block ECB appointments and has never issued a negative recommendation. Euro-region leaders will give the final nod.
The appointment is part of a personnel package that includes new leaders for the panel of euro-area finance ministers and the euro’s permanent rescue fund.
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