Chancellor Angela Merkel picked her aide Jens Weidmann as German central bank chief to succeed Axel Weber, a source said on Wednesday, making it less likely she will insist on a German running the European Central Bank.
Weidmann, who is 42, has spent five years as Merkel's top economic adviser, helping her lead Germany through the financial crisis, recession and euro zone debt crisis. As Bundesbank chief he gets a seat on the ECB's governing council.
The government source said Sabine Lautenschlaeger of the banking regulator Bafin would be vice president of the central while a spokesman for Chancellor Angela Merkel's junior coalition partner the Free Democrats confirmed Weidmann's appointment.
His nomination to succeed the effective but sometimes abrasive inflation-hawk Weber, who steps down on April 30, was expected but may throw open the contest to succeed Jean-Claude Trichet as ECB president to candidates from other countries.
Fellow-German Juergen Stark, another hawk, is already on the ECB's executive board.
If there was a German candidate for the ECB presidency like (euro zone bailout chief Klaus) Regling, it would have implied that Stark would have to step down and go to the Bundesbank and this road is closed now, said ING economist Carsten Brzeski.
With Stark and Weidmann, Germany will have two people in the council to inject the Bundesbank spirit. That should be sufficient, said Stephan Rieke, an economist at BHF Bank.
Although ECB Governing Council members are in theory equal, the Bundesbank president carries particular authority thanks to the German central bank's inflation-fighting legacy and by virtue of Germany being the euro zone's dominant economy.
NEVER INSISTED ON GERMAN
The choice of Weidmann rather than veteran central banker Stark means the latter should remain on the executive board of the Frankfurt-based the ECB.
I think really means they have given up the idea of having a German candidate for the ECB presidency, Brzeski said.
As an ECB outsider Regling's chances are slim. He told reporters last week that he already had a great job.
While Germany had widely been expected to take over the ECB this time, following a French and previously a Dutch presidency, Berlin has signaled since Weber's surprise resignation that it did not rule out a non-German candidate.
Finance Minister Wolfgang Schaeuble said last week Berlin had never insisted on a German for the job.
Italy is pushing the candidacy of Bank of Italy Governor and Financial Stability Board chief Mario Draghi, though his earlier incarnation as a Goldman Sachs banker could be a problem for some.
Weidmann is expected to bring a softer profile and greater political experience gained from Berlin to the Bundesbank job, in contrast to the sometimes brusque 53-year-old Weber.
But he should also mean continuity in terms of the central bank's focus on fighting inflation.
I wouldn't expect major changes in the general direction of economic policy, said Julius Baer analyst David Kohl.
Rieke said Weidmann could now get the right experience to be a contender for the top job at the ECB in future. He's still very young and could be a candidate for the ECB presidency later on, he said.
The Bundesbank was established in 1957 and its success in controlling inflation meant its decisions had an impact across Europe and beyond. It also made the Deutschmark a respected and strong currency until it was replaced by the euro in 2002.