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EUROPE

Merkel prepared to back Draghi for ECB job

Germany is ready to back Italy's central bank chief Mario Draghi to take over as European Central Bank president, Chancellor Angela Merkel said on Wednesday.

Merkel prepared to back Draghi for ECB job
Photo: DPA

“Germany could support his candidacy for the position of ECB president,” she told Die Zeit weekly in an interview.

Germany’s Finance Minister Wolfgang Schäuble has previously also suggested he would like to see Draghi as the next head of the ECB when Frenchman Jean-Claude Trichet’s term ends in October.

Merkel told Die Zeit that Draghi was “a very interesting and experienced figure” whose positions on monetary stability and the 17-nation eurozone economy in general were close to her own.

She had previously remained mum on backing Draghi, even after French President Nicolas Sarkozy expressed his support for the Italian, with some observers speculating Merkel was holding out for some unspecified concessions.

It is widely understood that any successful candidate would have to have the backing of the two biggest eurozone economies.

Berlin was left without a viable candidate of its own after former Bundesbank president Axel Weber announced his resignation in February.

Draghi, head of the Italian central bank, then emerged as the most likely candidate though it would mean the ECB has both a president and vice president from southern European countries.

A former Goldman Sachs banker, Draghi already sits on the ECB governing council and has further experience in international finance as head of the Financial Stability Board, a post he has held since 2009.

His stated support for ensuring that eurozone inflation remains in check and that governments respect strict fiscal guidelines has been crucial in garnering support from Germany.

AFP/mry

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ECONOMY

How is Denmark’s economy handling inflation and rate rises?

Denmark's economy is now expected to avoid a recession in the coming years, with fewer people losing their jobs than expected, despite high levels of inflation and rising interest rates, The Danish Economic Council has said in a new report.

How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year. 

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’,  Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.  

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn. 

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment? 

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024  about 1 percent below the estimated structural level. 

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending? 

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”.  The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”. 

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025. 

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023. 

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write. 

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers. 

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.” 

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