Expect the bank to maintain a steady course for 2019 despite a leadership change.
The end of 2018 has seen the withdrawal of the European Central Bank’s quantitative easing program, a major part of the EU’s response to the global financial crisis and the effects of the 2010-2015 sovereign debt crisis. 2019 will mark the return of some normalcy to monetary policy in the Eurozone, but the ECB is still expected to maintain its extraordinarily low interest rates and liquidity operations to ensure the recovery continues. The ECB is also expected to retain its $3 trillion in QE assets, such as sovereign and corporate bonds, for the coming years, while reinvesting the proceeds of maturing bonds and securities back into fixed income markets to avoid instability.
Most notably, 2019 will also mark the end of ECB President Mario Draghi’s eight-year term in office, with Eurozone member states anticipated to decide on his successor before the expiration of his term in October. The nomination process is is expected to yield multiple contenders. German Bundesbank President Jens Weidmann was widely seen to be the front-runner. However, with a new European Commission President and College of Commissioners to be selected in the coming year, Berlin will instead spend its political capital on installing a German in that position.
The focus is now expected to shift to three leading candidates from Finland, France and Ireland. Former Governor of the Finnish central bank Erkki Liikanen, who also led a group of experts towards the first major Eurozone reforms in 2014, is seen as the most popular choice. He is followed by the Governor of the Bank of France Francois Villeroy de Galhau, who has voted consistently in favour of Draghi policies during his time on the Governing Council, and Governor of the Irish central bank Philip Lane. Lane presided over Ireland’s EU-led bailout, and has already been nominated by Ireland for the position of ECB vice-president. Liikanen and Lane are the most likely candidates, as a Frenchman led the ECB through Draghi’s predecessor, Jean-Claude Trichet.
Despite the transition, a major shift in monetary policy is not anticipated. Draghi’s use of unconventional policy tools has allowed the ECB to join the ranks of other major central banks in their use of innovative policy to address a major economic downturn. Additionally, all three were actively involved in setting the Eurozone’s response during its financial and sovereign debt crises, and can be expected to retain Draghi’s policy stances. Whilst monetary policy is expected to stay consistent for the coming year, Draghi’s successor can be expected to maintain extraordinary measures to guard against any potential downturns.