Isabel Schnabel Leaves ECB After Seven-Year Effort to Bridge Policy Divide
Isabel Schnabel's Departure and Its Impact on the European Central Bank
By Francesco Canepa and Balazs Koranyi
FRANKFURT, Sept 24 (Reuters) - Isabel Schnabel's decision to leave the European Central Bank early for the International Monetary Fund closes a seven-year effort to reconcile Germany's traditional monetary conservatism with the crisis-fighting role of the institution it hosts and helped create.
Her departure comes as the ECB prepares to tackle inflation driven by a fresh energy shock and as political parties on the extremes gain ground across Europe by exploiting concerns about the cost of living.
German Representation at the ECB
Schnabel becomes the third consecutive German member of the ECB's Executive Board to quit before the end of a term. Former chief economist Otmar Issing, who left in 2006, was the last German on the top policymaking team to serve out a full mandate.
Schnabel's Approach to Inflation
She shared a long-held German aversion to high inflation. She was among the first ECB policymakers to recognise in 2022 that the surge in prices following Russia's invasion of Ukraine would prove persistent, pushing for interest rate increases.
Bridging the Policy Divide
Yet unlike predecessors Jürgen Stark and Sabine Lautenschläger, who left after clashes with the ECB as it moved away from traditional German monetary orthodoxy, Schnabel's tenure was defined by an effort to bring Germany closer to the institution's eurocentric thinking.
Stark resigned in 2011 over the ECB's decision to buy government bonds issued by heavily indebted euro zone states during the sovereign debt crisis.
Schnabel's Advocacy for Crisis-Fighting Tools
Schnabel, by contrast, became a leading advocate of such crisis-fighting tools, arguing that interventions in sovereign bond markets were essential to prevent financial fragmentation and ultimately protect the single currency.
"Our commitment to the euro is our anti-fragmentation tool," Schnabel said in 2022. "This commitment has no limits. And our track record of stepping in when needed backs up this commitment."
The remarks, which paved the way for the ECB to announce a new and so far unused bond-buying programme in the summer of that year, echoed former ECB President Mario Draghi's pledge a decade earlier to do "whatever it takes" to preserve the euro.
Policy Departure from Bundesbank Tradition
POLICY DEPARTURE
The position marked a clear departure from the Bundesbank tradition - centred on a preference for high interest rates and a strict separation between monetary and fiscal policy - that served as the ECB's original blueprint when the institution was established in Frankfurt.
The German central bank has also mellowed since Joachim Nagel, a social democrat, replaced Jens Weidmann, a conservative who opposed Draghi's euro-saving scheme in 2012.
Debate Over Germany's Role in the ECB
Not everyone believes that shift has benefited Germany.
Robin Brooks, a senior fellow at the Brookings Institution, argues that Berlin appointed "the wrong Germans" to the ECB in Schnabel and Nagel and their support for bond purchases gave ammunition to the eurosceptic Alternative for Germany (AfD) party.
"The fact that Germany subsidizes high-debt countries is objectively wrong and the AfD is picking up on this as a salient issue," Brooks wrote in his blog this week.
The AfD, which won the largest share of the vote in two German states this month, has been flirting with the idea of leaving the euro although more recently it has focused on its anti-immigration agenda.
Recognition of Schnabel's Contributions
Most mainstream economists, however, credit Schnabel with helping repair Germany's often difficult relationship with the ECB after years of tensions over monetary policy.
"Schnabel has clearly improved Germany's reputation at and around the ECB, leaving behind the well-known and often-feared dogmatic approaches by most of her German predecessors in the Governing Council," ING's global head of macro Carsten Brzeski said.
(Editing by Mark John and Ros Russell)