Spain’s De Guindos champions pragmatism at the ECB’s helm

The newly designated vice-president of the European Central Bank, Spain’s minister of Economy Luis de Guindos, said on Tuesday that the existing expansionary monetary stance should be for “extraordinary times”, as he described the European recovery as solid.

But he added that extraordinary measures would become “more normal” in a context of low-interest rates that could be needed to reach the ECB’s 2% inflation mandate.

Eurozone finance ministers today confirmed the election of De Guindos as their candidate to take over from Vítor Constancio on 1 June.

Before that, he will appear before the European Parliament on Monday (26 February). EU leaders will then ratify his appointment during the European Council on 2223 March.

His nomination kicks off the renovation of the Executive Council, the ECB’s key decision-making posts. Five out of its six positions will change by 2020, including the presidency held by Mario Draghi.

Speaking to reporters after the Ecofin Council, De Guindos said that he did not want to be described as either a ‘hawk’ or a ‘dove’ in terms of his stance on monetary policy.

Earlier this month, Draghi that the monetary stimulus would remain unchanged despite the “broad-based” and “robust” recovery.

The Italian banker told MEPs that underlying inflation remains “subdued”, and that “patience and persistence” were “still warranted” to reach the ECB’s mandate of a 2% inflation rate.

Against this backdrop, the ECB is prepared to keep buying EUR 30 billion in assets every month at least until September, and will not consider an interest rate hike until “well past the horizon” of the end of its asset purchases.

In the realm of central bankers, every word weights and every nuance matters. For that reason, De Guindos tried to be extremely cautious, insisted that he was “pragmatic.”

In his view, that entails taking into account all the factors affecting monetary policy, such as the recent US fiscal reforms, the ECB’s mandate, other monetary policies in the world to avoid frictions; and cooperating at G20 level.

“It means being aware that monetary policy is nuances”, he summarized.

Guindos also fought against being labelled as a hawkish. “I don’t believe that I have been particularly tough”, he claimed, looking back to his six years as a Eurogroup member. But he admitted to having had a “good relationship” with Germany’s former finance minister Wolfgang Schäuble, one of the main critics of the ECB’s monetary expansion.

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De Guindos suggested that reaching the 2% inflation target could mean that low interest rates become the new normal.

His position could toughen further if the president of the Bundesbank (German central bank) Jens Weidmann succeeds in taking over from Draghi in November 2019.

“The real question is the nomination of the next president of the ECB, the person that really could change the course,” said Robin Huguenot-Noel, policy analyst at the European Policy Centre (EPC).

Some member states, including France, are wary of the change of course that a De Guindos-Weidmann tandem could bring to the ECB’s leadership.

But it remains to be seen German central banker will take the precious post.

Huguenot-Noel noted that Weidmann is leading the race, but that his appointment would be linked to whoever is the leading candidate for the European elections among largest parties, in particular, the European People’s Party (EPP).

Many in Brussels expect that EU Brexit negotiator, Frenchman Michel Barnier, will be the EPP’s candidate, a decision that would ease the path to Weidmann’s nomination.

De Guindos insisted on Monday that there were no conditions attached to his choice by the Eurogroup members to pick Berlin’s candidate down the road.

But the ECB presidency has been seen for long as the highest prize by the German government among the European top posts that will be available after the European elections in spring 2019.

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