Why the next president of the European Central Bank is an appointment to watch

The aftermath of the European elections, which coincided in many countries with local/regional/general elections, has been bloody. The Brexit problem if anything became more insoluble; the Austrian government has fallen; Belgian politics is paralysed; and Greece has announced a snap general election after poor results for the ruling Syriza Party.

But none of that has prevented the political bargaining for the top positions on the continent getting underway. There will soon be a new president of the council to replace Donald Tusk, a new president of the commission to replace Jean-Claude Juncker, and there will also be a new head of the European Central Bank to replace Mario Draghi.

The last one matters hugely (though the other competitions may make more headlines.) Why is that? Of all central banks the ECB seems to have one of the highest degrees of operational independence. And the head of the ECB, though still answerable to their executive council made up of heads of the individual countries' central banks, is significant—with the ability to shape policy more than people perhaps realise.

It can all go wrong if the head is incapable of understanding the underlying economic realities. Yes, the ECB has some excellent economists whose influence may have recently been strengthened now that Philip Lane, previously governor of the Bank of Ireland, has been appointed to chief economist, replacing the excellent Peter Praet.

And yet see what a difference the Italian economist Draghi has made in comparison to his predecessor, the Frenchman Jean-Claude Trichet. At the early stages of the global financial crisis Trichet resisted repeated requests by Nicolas Sarkozy, the then president of France, to effectively print more money to help the likes of Greece and other countries in difficulty. Painful, crippling bailouts followed as a result, along with more fiscal contraction than would otherwise have been the case.

Trichet later raised interest rates twice in 2011, concerned about inflation, when in fact the eurozone was already sinking back into recession. This was most certainly instrumental in leading to periods of deflation and delayed the recovery, with GDP per head in countries such as Greece and Italy still not back to their pre-crisis levels—in some cases by a big margin.

Trichet's replacement by Draghi led to a considerable change in policy. As a new crisis was gathering in 2012, with Italy and Spain facing the prospect of being locked out of capital markets, he made his famous speech that he would do “whatever it takes” to save the euro. This was followed by cuts in rates—and a move to negative rates for banking deposits with the ECB—in mid-2014, and then in 2015 the start of massive quantitative easing and big injections of funds through long term loan operations. This ensured that a sharp decline in lending to firms since the financial crisis was reversed. The ECB thus became effectively a lender of last resort, despite resistance from a number of countries, particularly Germany.

One may dislike the impact that such low interest rates across the eurozone have had on savers and on the distribution of wealth, and wonder whether low yields have encouraged countries to accumulate more debt than they should. Banks' profitability has probably also suffered. But while fiscal tightening has continued it is arguably Draghi's unconventional monetary policies that have allowed the EU economy to finally recover. And under him trust in the European banking system has also improved, with the ECB taking overall regulatory responsibility and with moves towards a banking union.

QE has come to an end after some €3trn of government bonds (and a few hundred billion of corporate and covered bonds) were bought by the Bank in the secondary markets. For the moment all bonds coming to maturity get replaced. And as the region saw some renewed weakness at the turn of the year a fresh programme of subsidised long-term loans was announced. So the focus remains on ensuring that monetary policy is deeply in tune with the underlying economy.

So who will replace Draghi will matter for the continuity of this policy. We all need a growing eurozone. But if Michel Barnier wins the European Commission post the likelihood is that Jens Weidmann, the current Bundesbank President may well get the job, as different countries seek to balance the roles between them. Very few who have been following Weidmann's policy moves and pronouncements think that he will be anything as accommodating as Draghi. He may of course change once he is in the new role. But in my view, for anyone worried about the future course of the economy in the region, this is the appointment to watch.