Finnish Olli Rehn marks credentials as free seats in the ECB



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Olli Rehn has spent much more time in politics than in shaping monetary policy.

A diversified CV, which includes stints as Minister, European Commissioner and President of the Football League on his native Finland, is currently being replaced by others in order to replace Mario Draghi as President of the European Central Bank.

With the year when Mr. Draghi will leave, the new Finnish governor will not publicly announce his candidacy. However, he points out that the political turmoil must leave central banks facing unexpected attacks on their independence, whosoever takes the highest place in Frankfurt, he has to do more than to keep the euro zone economy on the same mare.

Central bankers need to have the "ability and flexibility to maneuver, even though the current world is full of uncertainty," said Mr Rehn, such as the rising anti-EU populism and the increasing tension between the US and China. Mr Draghi was attacked by ministers in Italy, his home country and Donald Trump attacking the federal reserve for raising interest rates as a "loco".

But Mr Rehn was also in trouble in order to reduce the danger to Europe. "We have real trade tensions and we are rightly concerned about the fight against rising protectionism, but globalization has not disappeared," he insisted.

Mr Rehn, 56, became Governor in July two years after joining the Finnish Central Bank. Prior to this, the Minister of Economic Affairs was best known for his decade for the European Commission, where he got a reputation as a prudent operator, but he is a careless public speaker. Mr Rehn had a portfolio of economic and monetary affairs at the height of the crisis in the euro area, which played a key role in the mediation of markets in order to preserve the single currency area, in particular during the negotiations on the salvation of Greece.

Referring to the period when the cost of government borrowing on the periphery of the eurozone rose to a dangerous high level, he said: "Nobody wants to do this again".

Among the leading candidates to replace Mr. Draghia, also chairman of the Bundesbank Jens Weidmann, Banque de France Francois Villeroy de Galhau, member of the ECB's Executive Board Benoît Cœuré, the head of the Bank of Estonia Ardo Hansson, the central central banker of the Netherlands, Klaas Knot and his predecessor, Finnish Central Bank, Erkki Liikanen.

Although the comparative lack of experience of Mr Rehn's central bank can be seen as a disadvantage, there is no doubt that the next president of the ECB will have to deal with deep political issues.

These range from the fall from Brexit to the end of an integrated banking union, where banking supervision and rescue are resolved at European level. Mr Rehn said that it was "essential" to concentrate on completing the banking union, rather than on the creation of a rainy day fund paid by a common budget, which he called the "divisional".

The ECB's most prominent challenge comes from the region's third-largest economic region: in Italy. Government plans to cope with a significant budget deficit led to clashes with the commission and tensions between Rome and Brussels. The ECB was fired because it no longer did it to control Italy's borrowing costs from speculative investor attacks.

Luigi Di Maio, vice-president of the Italian government, called on Mr Draghi last month that the right moment "to cheer for Italy" is the day after the president of the ECB announced that the bank will continue with plans to withdraw the key element of the monetary crisis stimulus.

Like Mr Draghi, Mr Rehn is clear that there should be no extension of the ECB's quantitative easing program of 2.6% after the end of this year, if it will correspond to one country. "The only legitimate way of shaping monetary policy, whether conventional or unconventional, is to look at economic development in the euro area … as a whole, this is our criterion," he said.

Mr Rehn also warned that challenging the ECB's right to determine monetary policy without political pressure could jeopardize. "The independence of central banks … was helpful in the content [eurozone] crisis and renewal, not only financial, but also economic stability, "Rehn said.

He supported Mr Draghi's message that Italy should, in order to assist the ECB, attribute a rescue program from the European Stability Mechanism, institutions established during the crisis, to assist Member States in distress.

If it did so in Rome, the ECB had in its armaments another tool created during the crisis: a program of completed monetary transactions that allows policymakers to buy bonds in potentially unlimited quantities in order to challenge market speculation against the euro. Mr Rehn said that the controversial tool that is the subject of the case that came to the European Court is "the real and central part of the ECB's tool".

It shares in part the view that the ECB will stop the expansion of the QE despite signs of economic slowdown.

Some are worried that growth has dropped from 0.4% in the second and third quarters to a 0.2% reduction for a four-year period. Mr Rehn said: "We recognize risks, but the baseline scenario has not changed until the end of October, and it still has not changed."

Referring to the bank's decision to continue to reinvest the income from securities purchased under QE, which is now maturing, even after the bank closed the purchase of new bonds, it announced that monetary policy would remain exceptionally loose for a while. "A quantitative easing program of 2.6 percent is a very large amount of accommodation," he said.

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