ECB Hawk-Dove Ranking: Holzmann Joins Weidmann and Knot at Hawkish End of Spectrum

18 November, 2021

By David Barwick – FRANKFURT (Econostream) – After yesterday’s revision of Econostream’s ranking of the members of the European Central Bank Governing Council in terms of hawkishness/dovishness, we wrote that we envisioned no further changes until a successor for outgoing Bundesbank President Jens Weidmann had been named.

That was before we heard Austrian National Bank Governor Robert Holzmann share his latest thoughts.

To be sure, we never considered Holzmann a dove or anything near it. But following his unvarnished comments on a range of ECB policies, all of which he took strikingly clear exception to, it became obvious that his previous ranking of 1.5 (2.0 being our limit of hawkishness) was woefully inadequate.

We have correspondingly updated the ranking, situating Holzmann at the hawkish extreme along with Weidmann and Dutch National Bank Governor Klaas Knot.

If anything, we wonder whether Holzmann should be ranked a tad more hawkish than his two monetarist colleagues, inasmuch as his downright bitter opposition to quantitative easing and liquidity provision to the banking system, along with his profound scepticism regarding the motivation for ultra-low interest rates, argue for putting him in a class of his own.

However, we are going to assume that such a perception is driven mainly by the Austrian governor’s singularly direct style of communication, and less by substantive philosophical differences between his monetary policy views and those of his German and Dutch colleagues.

We would note two small consequences of this revision. The first is that what we call the average level of hawkishness/dovishness of the entire Governing Council now stands at -0.16 versus -0.22 before we revised National Bank of Belgium Governor Pierre Wunsch’s ranking from marginally dovish to clearly hawkish.

The difference between -0.22 and -0.16 is not great, but nonetheless tangible. All recent revisions have been in the direction of greater hawkishness, and if economic developments hold up, that could prompt other monetary policymakers to migrate in the same direction, potentially shifting the balance.

Importantly, much depends on who is appointed to succeed Weidmann.

The other small consequence of today’s revision that we would point out is that the members of the hawkish camp are now even less well distributed than previously along their half of the spectrum. In particular, there is no one situated between Knot, Holzmann and Weidmann at the extreme and their nearest neighbour, Madis Müller, head of Estonia’s central bank., whose 1.0 ranking would indicate something like moderate hawkishness.

What the ramifications of this polarisation might be we will leave for another day, but the less uniform distribution might not facilitate efforts to find common ground.