ECB: Unexpected Shake-Up

ECB headquarters, Frankfurt

This is another shake-up of the ECB. Tonight, Sabine Lautenschläger announced that she will resign from office by the end of the month. Lautenschläger has been on the ECB’s Executive Board since 27 January 2014, when she succeeded Jörg Asmussen, who back then left the ECB for a position in the German government. Her eight-year term would normally end in January 2022. Lautenschläger has been mainly responsible for setting up the Single Supervisory Mechanism (SSM). No reasons for her resignation were given in the press statement. So far, it is unclear what her motivation for resigning was. It may be personal reasons but also a protest against the ECB’s recent decision to engage in another round of monetary easing. The latter would fit into an almost typical German tradition as previously Executive Board member Jürgen Stark and Bundesbank president Axel Weber had stepped down out of protest.

Sabine Lautenschläger has been the most vocal and often the only member of the Executive Board to publicly criticize the ECB’s bond purchases. Some commentators had also expected her to be in the race for chair of the SSM, which eventually went to the Italian Enria. Lautenschläger will now be the fifth Executive Board member to resign before the official term ends. Before her, first ECB president Wim Duisenberg resigned to make way for Jean-Claude Trichet, Lorenzo Bini Smaghi resigned to only have one Italian national on the Board after Mario Draghi had become president, Jürgen Stark stepped down to demonstrate his opposition against possible bond purchases and Jörg Asmussen stepped down to take up a job in the German government.

The resignation of Lautenschläger also means that there will be two new Executive Board members this autumn, as Benoit Coeuré’s term will end at the end of the year. It is almost a given that Lautenschläger will be replaced by another German. Don’t count on Weidmann but rather on Isabel Schnabel (a member of the Council of Economic Advisers) or Claudia Buch (vice-president of the Bundesbank). Weidmann would have very little to win on the Executive Board as the most influential portfolio economics is taken by Philip Lane anyway. When it comes to the replacement of Coeuré, the only thing that is certain is that it won’t be a French national. In our view, Ollie Rehn from Finland or Klaas Knot from the Netherlands are potential candidates but we also don’t rule out a candidate from an Eastern European country as they have never had a seat on the Board so far.

In any case, if Lautenschläger’s resignation has really been driven by her opposition against the ECB’s latest decision to cut rates further and to restart Quantitative Easing, it would worsen the divide between hawks and doves. While to some extent dissenting views can also be seen as another step toward becoming a mature central bank, the fact that the opposition against the last policy decision has become very vocal even after the decision shows how fragile the ECB currently is. When Christine Lagarde takes over from Mario Draghi in November, she will have some work to do to mend the ties.