MNI SOURCES: Italian Panetta Seen Taking ECB Market Role

--Fabio Panetta Seen As Likely To Take ECB Market Role, Officials Said

--Policy Review May Focus On Inflation Target

--Next Few Months' Data Seen Supporting Unchanged Policy

     LONDON (MNI) - Italian Fabio Panetta may take over management of the

European Central Bank's key market operations brief as new president Christine

Lagarde oversees an Executive Board overhaul ahead of a review of the ECB's

monetary policy framework, ECB officials told MNI.

     Panetta and German Isabel Schnabel would fit naturally into the roles taken

by their Executive Board predecessors Benoit Coure and Sabine Lautenschlaeger

once they arrive at the ECB around the turn of the year, several sources said.

The reshuffle, to be decided by Lagarde, would come as she faces calls from some

within the broader Governing Council to make the monetary policy process more

democratic now that former President Mario Draghi has left.

     "I'd suggest Mr Panetta will fill the role vacated by Benoit Coeure, while

Isabel Schnabel will fit nicely into the vacated banking role," said one

official, asking not to be named.

     Another official said: "There will not be a big public discussion. Lagarde

will probably reflect over Christmas and then there will be an Executive Board

discussion in January."

     Lautenschlaeger was given responsibility for overseeing banknotes, market

infrastructure, risk management and payment systems in April, when her term as

deputy chair of the supervisory board of the Single Supervisory Mechanism came

to an end. Yves Mersch has been named as the SSM board's deputy chair, but

Schnabel could assume that role too once Mersch leaves the ECB at the end of

next year, another official said.

     --GOVERNING COUNCIL DISSENT

     Lagarde, who presides over her first meeting on Dec. 12, will face a

Governing Council riven by unusual levels of disagreement following September's

easing package, which prompted open expressions of dissent from Dutch and German

central bankers and was followed by Lautenschlaeger's resignation.

     Draghi, who irritated some colleagues by pre-announcing policy measures

before they had been agreed, tended to ram through decisions he favoured without

votes, officials said. ECB rules already permit Governing Council members to

initiate votes, but, in practice, sources said, these had not taken place.

     "The fact that votes aren't counted within the Governing Council has

created tensions and many think it should be otherwise. That is something which

will need be addressed sooner or later," one official said.

     But another official said moving towards greater transparency by publishing

more complete accounts revealing individual Council members' opinions would be

impractical.

     Lagarde has already indicated support for a review of the ECB's monetary

policy framework, something called for by Finland's Olli Rehn. A similar

exercise is underway at the Federal Reserve, and the Bank of Canada carries them

out periodically.

     "I think they will try to mimic the Canadian or Fed exercises. My opinion

is that that final outcome will be to make this 2% metric more credible in some

way," said one official, referring to the ECB's inflation target.

     Another official said the review would start with "a fairly blank sheet."

     --INFLATION TARGET

     "The inflation target option could be to ... move to a more realistic

target band, for example the RBA has 2% to 3%, the BOE targets 2% but has

greater discretion of 1 percentage point either side."

     Another official, though, was cautious about likely changes resulting from

the review, which could start early next year.

     "We're still stuck in the same scenario," the official said, "So we need

some kind of change, to exit this phase, before we can start discussing a new

approach."

     The prospects for further immediate policy clashes may be reduced by what

appears to be a stabilising economy, with signs that risks such as the

China-U.S. trade dispute and a hard Brexit may recede for the time being. Any

concerns within the Governing Council regarding ongoing policy, such as the

difficulty of keeping quantitative easing asset purchases in line with the

so-called "capital key", will likely be kept inhouse for the near future at

least, one official said.

     "It's going to be a pretty quiet period for a few months at least. Data

will bump along at lower levels without any great deterioration and I suppose

for a change there could be signs of upside risk," another source said, adding

that any economic improvement might have the unfortunate side effect of reducing

the likelihood eurozone governments will heed ECB calls for greater fiscal

stimulus.

     "We're all on board in supporting a more accommodative stance, but some

would rather wait to see a very serious deterioration of the outlook before

weighing any other options," another official said.

     "I think there will be a debate on what 'severe deterioration' really

means. The risk is that while we debate, we might end up behind the curve with

inflation expectations already de-anchoring."

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

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