Belgian to head economics at European Central Bank

AP News
Posted: Jan 03, 2012 1:36 PM
Belgian to head economics at European Central Bank

A top European Central Bank official from Belgium has been put in charge of economics for the central bank, a surprise decision that passed over two candidates from Germany and France.

The bank's six-member executive board gave the key post to Peter Praet, a former Belgian central bank official who joined the ECB in June. The 62-year-old Praet takes over the responsibilities of Germany's Juergen Stark, who resigned, the bank said in a statement Tuesday.

Praet is the first non-German to hold the post in the ECB's 13-year history. His new responsibilities are important because he oversees the ECB economists who prepare projections upon which interest rate decisions for the 17-nation eurozone are based.

Praet's other responsibilities include ECB human resources and its budget.

Praet is regarded by some analysts as less of a monetary hawk than Stark, meaning that he would be slightly more willing to cut interest rates in a given situation. Higher rates fight inflation but can hurt growth.

The appointment comes as a surprise after speculation that the economics portfolio would go to one of the two new board members who joined Jan. 1: Joerg Asmussen, a former German finance ministry official appointed by EU leaders to fill Stark's seat, or Benoit Coeure, a former French treasury official.

There had been speculation that either Asmussen or Coeure would bring a more pragmatic stance than the vociferously anti-inflation Stark, given that they both come from posts in government, as opposed to university teaching or central banking. Eurozone governments have been struggling with how to help heavily indebted governments; Asmussen has been a key figure in negotiating bailouts for euro members Greece, Portugal and Ireland.

Analyst Nick Mathews at the Royal Bank of Scotland rates Praet as "slightly hawkish" and "a bit more pragmatic" compared to the outright hawkish Stark. He said the board's decision to give the responsibility to a veteran central bank official such as Praet _ instead of a candidate coming from the German or French government _ could have been "a way of avoiding any accusation that there could be any political influence."

The ECB has been a key institution in fighting the crisis over too much debt piled up by several eurozone governments. Greece, Portugal and Ireland have needed bailouts after they could no longer borrow to refinance their debts, and Italy and Spain have been under strong market pressure as well.

The central bank has loaned heavily to eurozone banks to keep credit flowing, cut interest rates to spur growth, and bought limited amounts of government bonds. Buying bonds helps drive down the interest rate costs governments face when they borrow to pay off maturing debt.

Excessive interest costs can lead to default or a bailout. So far the central bank has resisted stepping up the purchases of government bonds, saying European governments must cut their deficits and not wait for the central bank to rescue them.

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Both of Praet's predecessors _ Stark and Otmar Issing _ were former officials of Germany's fiercely anti-inflationary Bundesbank, whose emphasis on low inflation and a strong German currency in the era before the euro is regarded as the model for the ECB's anti-inflation mandate that is enshrined in the basic EU treaty.

That mandate differs from that of the U.S. Federal Reserve, which has a broader responsibility to promote growth and employment.

Both Asmussen and Coeure will still be in the thick of fighting the crisis. Asmussen, a veteran of international finance summits and a key figure in bailout negotiations, will be responsible for representing the ECB at international financial meetings. He will also oversee the legal department amid disputes over how far the bank can go in bailing out eurozone governments under the EU treaty.

Coeure, who will be responsible for market operations and information systems, joined the ECB after executive board member Lorenzo Bini Smaghi resigned.

The executive board, which includes bank President Mario Draghi, supervises day-to-day operations at the bank's headquarters in Frankfurt. The board assigns each member a specific area of responsibility.

The person responsible for the economists' work is sometimes called the ECB's chief economist, although that is not their official title.

The six board members also sit on the bank's 23-member governing council, which decides interest rates.