Christine Lagarde, currently head of the International Monetary Fund, has been nominated to succeed Mario Draghi as president of the European Central Bank (ECB). The announcement came as part of a package of appointments to other key roles in European institutions: the president of the European Commission; the president of the European Council; and the European Union’s high representative for foreign and security policy.

In expectation that the leadership of the ECB would be decided by what is widely characterized as ‘horse trading’ (and perhaps as much by the nationality of the candidates as their competence), prior to the leadership announcements, Chicago Booth’s Initiative on Global Markets invited its European panel of economic experts to express views on the process and its potential effects on the quality and independence of monetary policy-making.

Nationality, competence, and the quality of monetary policy

There was a strong consensus among the panelists that prioritizing nationality ahead of competence would be bad for monetary policy-making. However, in their comments, the experts indicated some of the nuance in their views.

Some agreed strongly with the proposition that putting nationality over competence could have a negative impact. For example, Jordi Gali at Universitat Pompeu Fabra said, “It is a self-evident proposition. Nationality seems as good a criterion as weight for the issue at hand.” Christopher Pissarides of the London School of Economics added, “Using nationality as a selection criterion is silly. Competence in monetary policy has nothing to do with nationality.”

Karl Whelan of University College Dublin emphasized the importance of competence: “ECB President is a key job and much has depended in recent years on Draghi's decisions. You need the right person for the job.” Nicholas Bloom of Stanford made an analogy with a quite different arena: “Barcelona does not pick its team based on being born in Barcelona—if it did it would not win anything. The ECB should also pick the best.” So too did John Van Reenen of MIT: “See family firms work: choosing leaders based on connections rather than talent generally leads to disaster.”

While Oxford’s Peter Neary agreed with the statement, he warned that “‘Competence’ should be interpreted broadly: commanding academic respect but also with personal, political, and administrative skills.” Pol Antras of Harvard also agreed, but noted, “Though some geographical diversity in the Board is certainly a desirable goal.” In a similar vein, Franklin Allen of Imperial College London commented, “Competence is clearly extremely important. However, in a severe eurozone crisis, understanding key countries’ position[s] may also be important.”

Chicago Booth’s Lubos Pastor, who responded to the statement by saying that he was uncertain, expressed an important caveat to the majority view that nationality should be less significant in the selection process: “Ignoring nationality could undermine the ECB’s democratic legitimacy in voters’ eyes, which could eventually jeopardize the ECB’s independence.”

Horse trading

In regard to whether ECB selection processes are harmed by intergovernmental trade-offs involving appointments to other European institutions,there remained a substantial majority in agreement, but there was considerably more uncertainty.

Gali was again in strong agreement: “This is just an additional proof that, whether we like it or not, the EU is little more than intergovernmental agreement.” Karl Whelan added, “‘Significantly worsened’ might be overstating it, but this kind of horse trading for top jobs certainly doesn’t help.”

While LSE’s Pissarides agreed with the statement, he cautioned, “Although the best person should always be selected, having many key institutions headed by the same nationality is fraught with dangers.” Franklin Allen, who responded that he was uncertain, made a similar point: “If all the positions were held by male northern Europeans, it would not be good for the democratic legitimacy of the Union.”

Booth’s Pastor continued that theme of legitimacy: “Ignoring nationality could undermine the ECB’s democratic legitimacy. Also, most countries have someone who could do a good job leading the ECB.” And Jan Pieter Krahnen of Goethe University Frankfurt, who disagreed with the statement, concluded, “The phrase overstates the effective influence of trade-offs. An appointment balance may help to achieve mutual recognition, given quality.”

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