Lagarde’s Next Colleague at ECB Won’t Start Out Rocking the Boat

Frank Elderson, the Dutch supervisory official selected by euro-area governments for the European Central Bank’s Executive Board, gave his backing to the institution’s emergency measures in a signal that he won’t start out by rocking the boat.

Steps taken in response to the coronavirus pandemic have been “effective in preserving favorable financing conditions for all sectors and jurisdictions across the euro area,” Elderson said in a written response to questions from the European Parliament, which was seen by Bloomberg News.

“The ECB should continue to use all its instruments to ensure that financing conditions remain favorable to support the economic recovery and counteract the negative impact of the pandemic on the projected inflation path,” he said.

With a backdrop of discontent in the Netherlands on ECB policies, the prospect that the Dutchman may start out supporting the institution’s flagship crisis initiative is likely to prove a comfort to President Christine Lagarde as she attempts to forge consensus among her colleagues.

Elderson, who is currently head of supervision at the Dutch central bank, faces a hearing in the EU Parliament on Monday. The assembly gets to weigh in on his nomination but doesn’t have the power to block him. Lawmakers have repeatedly complained about the lack of female candidates for such positions.

“I sincerely hope that you will consider me on the basis of my qualifications,” Elderson said when asked whether he would accept the appointment even if the parliament were to vote against him.

A spokeswoman for the Dutch central bank declined to comment on the document.

The 50-year-old would join the ECB’s top team as it continues to battle the fallout from the coronavirus. Its emergency asset purchases are scheduled to run until mid-2021, andmost economists expect the program to be extended for another six months.

Asked whether thepurchase plan should get a more permanent character, Elderson said it is “temporary, targeted and proportionate,” with its calibration “directly linked to the evolution of the pandemic and its consequences for the transmission of monetary policy and the economic outlook.”

The Dutchman, who chairs theNetwork for Greening the Financial System, also highlighted the ECB’s responsibility in accelerating the transition to a carbon-neutral economy.

The designs of long-term lending and asset-purchase programs “have important implications on the capital allocation in the economy and it is important that these policies are ‘future proof,’ without compromising the effectiveness of monetary policy in attaining the primary objective,” Elderson said.

“It would be an important step to acknowledge that acting in accordance with the principle of an open market economy does not necessarily imply that the ECB should under all circumstances strictly adhere to market neutrality, in particular in the presence of market failures,” he added.

Elderson, who is likely to be nominated to be the vice chair of the ECB’s watchdog for lenders, also addressed financial stability and bank supervision.

He argued banks must prepare for a likely deterioration in asset quality as a result of the pandemic, warned against any fragmentation of European regulation, and called on the ECB to “step up their game” to ensure its supervisory approach is fit to handle technological innovation.

— With assistance by Nicholas Comfort

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