by Steve Whitehouse ----
PARIS (AFX) - Speculation about the possible replacement of European Central Bank president Wim Duisenberg could hurt both the euro and the credibility of the ECB in the year ahead, economists said. "Speculations about the ECB presidency succession will certainly not work in favour of the euro," said Anja Hochberg of Credit Suisse. Adolf Rosenstock said the issue is not yet affecting the euro "but has the potential to blow up in the first half of 2002".
Duisenberg was appointed for an eight-year term which runs until May 2006.
At the time of his appointment in 1998 he said he would probably not want to serve the full term, but that he would want to see through the introduction of euro notes and coins in the first half of 2002.
France claimed that Duisenberg's statement was part of an agreement for him to step down in favour of Bank of France governor Jean-Claude Trichet in 2002, but subsequent comments from Duisenberg have sown doubts about his intentions. In Dec 1998 he told Le Monde newspaper he did not plan to retire after four years and might even complete his full term.
Speculation about the future of the ECB presidency has flared up again recently after Luxembourg Prime Minister Jean-Claude Juncker said that he and others had been approached about succeeding Duisenberg. Juncker said he was not interested in the post because he thought it inappropriate for a politician to head the central bank. Handelsblatt newspaper, which carried Juncker's comments, said Berlin-based politicians speculated that Juncker might have been approached by euro group president Didier Reynders, who has often had a tense relationship with Duisenberg.
Others interpreted the speculation as a French move to keep alive France's hopes of replacing Duisenberg with a non-political French candidate next year.
But the speculation is doing little to help the ECB's image and credibility, economists said.
Patrick Franke of Commerzbank said the leadership debate threatens to damage the ECB's already fragile credibility.
"Various candidates, whose most vital qualification seems to be that French is their native language, are now jockeying for the succession to Mr Duisenberg as ECB president," he said. One French bank economist said the speculation could pose dangers for the ECB's image. "It is more the method of his selection than the name of the winning candidate that will count. If he is chosen very quickly and calmly that would create a good impression. If there are disputes that drag on for months, that will be dangerous, even if they end up with the best of all possible candidates," he said. Even so, the ECB's credibility depends on many other factors rather than just the question of the presidency, economists said. Hochberg said markets will in the short run judge ECB credibility by whether its actions are in line with its statements.
"In the long run, its credibility is entirely based upon its performance in maintaining price stability," she added. And Marc Touati of Natexis Banques Populaires said changing the ECB president would serve no purpose if the bank's strategy did not change.
"Wim Duisenberg has attracted a fair bit of criticism, and so his departure could have a favourable psychological effect in the short term, but only a change in the ECB's monetary strategy and an increase in ECB transparency can lead to a lasting shift in market psychology to something which is more favourable towards the euro, the central bank and EMU," he said.
And some economists said the presidency speculation is only a minor factor in the euro's current weakness.
Andres Munoz of BSCH said the speculation is having an impact "but it is not the most important factor".
Ditmer de Vries of Rabobank said the recent speculation has done no new damage to the currency or the ECB's credibility because doubts about the presidency succession were already priced in. "Everyone is aware of the political games and agreements that have been made around the appointment of Duisenberg," he said.
De Vries said the market may take the view that things "can only get better" with another president. But Guillaume Menuet of 4CAST said a change of president is unlikely to have any impact on the currency. "Although the uncertainty surrounding Duisenberg's succession is not helping the euro, it is difficult to argue that a more charismatic central banker at the helm of the ECB would be more successful selling the message that a strong euro is in Europe's interest," he said.
Menuet said ECB credibility is hampered by the fact that the European public does not yet have euro notes and coins in its hands, but this is set to change in January.
France will clearly play an important role in the choice of the next ECB president, given its strong belief that it had already secured the right to have Duisenberg succeeded by a Frenchman. The French bank economist said Duisenberg will want to serve through until the summer of 2002 because of the introduction of notes and coins, but also because he will want to wait until after next year's French elections.
"There are also elections in Germany, but in this particular case, it is the French elections which count," he said. "Everyone seems convinced that France will absolutely insist that the successor is French, and almost no-one wants a German successor." Commerzbank's Franke said France will be particularly keen to secure the ECB presidency next year because the mandate of its current representative on the ECB executive board -- vice-president Christian Noyer -- runs out at the end of May 2002.
Noyer himself has even been mentioned as a possible successor to Duisenberg, but the French bank economist said he has too low a profile for the job and it is not clear whether he would be entitled legally to take a second post on the ECB board. The Maastricht Treaty says the six executive board members are elected for non-renewable terms. The ECB argues that this means they can't serve on the board after completing their term, even in a different capacity, but some EU governments say board members could seek another position because they wouldn't be renewing their current jobs. Trichet is still seen by many as the leading candidate to replace Duisenberg, but he has been placed under judicial investigation by a French examining magistrate over losses at Credit Lyonnais in the early 1990s, when he was director of the French treasury. "Trichet's candidacy seems to me to be seriously compromised as long as he is under investigation. It is impossible to take the risk of seeing the ECB president called before an examining magistrate or even eventually facing a legal action. I make absolutely no judgement about the actual case, it's just a question of image," the French bank economist said.
French Finance Minister Laurent Fabius has also been mentioned as a possible successor to Duisenberg, although the French elections make this an unlikely outcome, the economist said.
"If the right wins the elections, they will not want to appoint him, and if the left wins, he will remain a minister or be prime minister," he said.
Appointing a politician could also undermine the ECB's hard-won independence, although Duisenberg himself said that as a former finance minister, he saw no problem with having an ex-politician as ECB president. He was Dutch finance minister before heading the country's central bank.
The French bank economist said EBRD president Jean Lemierre is another possible candidate. Lemierre may not be well known enough, but this would not necessarily prevent him from being appointed, he said. But the economist said he would instead put his money on European trade commissioner Pascal Lamy.
"He has no experience as a central banker, but he had important responsibilities with (former European Commission president Jacques) Delors over a long period," he said.
"And although he doesn't have a reputation for being a great diplomat...he wouldn't be worse than Duisenberg in that respect," he said.