08 February 2019

Bloomberg: ECB's empty chair embarrassment leaves Draghi in pre-Brexit bind

The ECB president hasn’t picked a new second-in-command for his institution’s supervision arm, meaning the position will be vacant on Monday when Sabine Lautenschlaeger’s stint ends. There’s no indication of a plan to replace her, no evidence of progress in filling two seats on the board that have been empty since 2017, nor the one that will open up when Ignazio Angeloni leaves next month.

The vacuum at the helm of the Single Supervisory Mechanism means the watchdog of the region’s biggest banks may wake up on Brexit day led solely by Andrea Enria, who has been in his job for only a month, and one other ECB official.

“I had hoped that the ECB would run a lot more smoothly,” said Andreas Freytag, a professor of economics and chair for economic policy at the Friedrich-Schiller University of Jena. “With Brexit, you’d want to see more continuity in supervision given we have little idea how this is going to play out for markets and banking.”

While it’s not totally clear how this embarrassment for the ECB came to pass, the empty-chairs situation showcases some design flaws. At the top, the terms of both the SSM chair and vice-chair lasted five years and weren’t staggered for continuity. That meant Lautenschlaeger finishing only a month after Daniele Nouy, Enria’s predecessor.

It’s within Draghi’s gift to allocate portfolios to members of the Executive Board, even though the Governing Council will officially nominate the SSM vice chair. (Even the European Parliament and the region’s governments will get a say.) The choice is narrow, exacerbated in this case by the mismatch of the five-year supervisory term to the normal eight-year stint for the board.

Asked in January if there was news about the next vice chair, Draghi replied “sorry, not yet.”

Lautenschlaeger was said to be unwilling to extend her term, which was officially non-renewable anyway. A Governing Council meeting originally planned for Feb. 6 was the last scheduled chance for Draghi to push for a vote, but that gathering was canceled. [...]

Full article on Bloomberg

© Bloomberg