MNI INTERVIEW: Weidmann May Need Mea Culpa To Head ECB

By Luke Heighton

     ZURICH(MNI) - Jens Weidmann's chances of succeeding Mario Draghi as ECB

President may depend on whether he can admit to his own past mistakes, according

to one of the former ECB Governing Council colleagues of the Bundesbank boss.

     "Some people say this is a debate about whether the president can be a

German," ex-Central Bank of Ireland Deputy Governor Stefan Gerlach told MNI. "Of

course, the president can be a German. It would be undemocratic otherwise.

     "Some people think that Weidmann is not the right sort of person for the

job, but I disagree. Weidmann is a good economist, he's a good public speaker -

which is important - and he's also experienced."

     "Weidmann is probably more flexible than he appears, but he has failed to

communicate that. He should say something like 'Looking back over the last ten

years of ECB policy, I recognise that some of the concerns that I had at the

time have not been realised."

     Weidmann surprised ECB-watchers earlier this month when he dropped his

opposition to secondary market bond purchases by the central bank. This stance

against so-called Outright Monetary Transactions had been considered a key

stumbling block to furthering his ambitions at the ECB. However he appeared to

stop short of voicing full support for its future use.

     "Weidmann's problem is that he hasn't sold the ECB in Germany," Gerlach

said. "In fact, he testified against the ECB in the German constitutional court.

He has to say that the policies the ECB has adopted over the last ten years are

now the laws of the land, and that these too can be used again if the need

arises."

     With the ECB edging towards conducting a comprehensive review of its

monetary policy strategy, an operation last performed in 2003, and Draghi on his

way out, Gerlach had words of advice for his successor.

     "The thrust of the review should be to look at how the different tools

worked and come up with a ranking of their effectiveness, and then which tools

might be used again in the future. It should say in particular that OMT is also

part of the framework. Once you've reached an agreement that these tools can be

used again, then some of the concern of having Weidmann as president would go

away."

     --"MUDDIER YEARS"

     "It's clear now that the idea that the short-term interest rate is the only

monetary policy tool was almost an historical aberration. We're back to the

muddier years before that; the central bank can have a large number of tools. In

that sense the world has become much more complicated."

     Gerlach served under former Central Bank of Ireland governor Philip Lane

for "one very good day" before the Irishman's elevation to ECB Chief Economist

earlier this month.

     Asked how Lane and his predecessor in Frankfurt compare, Gerlach replied:

"Peter Praet has been very persuasive, very good at talking to people and at

selling the ECB's policies. This is very important. His CV is formidable. But

Philip has stronger academic credentials as an economist."

     Gerlach expressed concern over the changing composition of the ECB, with an

increasing number of central bank governors coming either from a fiscal policy

background, or having comparatively little monetary policy experience.

     "This is something very worrisome, because they can't participate in the

discussion. This leads to bias towards doing too little too late. The advantage

of Draghi, I think future monetary historians will say, the reason he was good,

was that he had financial markets experience. He listened to what market

participants had to say.

     "He got the sense from them in 2012 that if he didn't say something the

euro could cave-in, and he took decisive action. No civil servant would ever

have done that. Politicians and civil servants are not great at running monetary

policy in uncertain times."

--MNI Frankfurt Bureau; +49-69-720-146; email: luke.heighton@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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