The headquarters of the European Central Bank (ECB) is pictured in Frankfurt am Main, western Germany Image Credit: AFP

Brussels: European Union leaders are about to begin their tussle over who should run the region’s monetary policy in the era after Mario Draghi.

Heads of government will sit down for dinner in Brussels on Tuesday, in the aftermath of EU parliamentary elections, to kick off talks on the next suite of top political appointments. Among them is arguably the bloc’s most-powerful economic job — the European Central Bank presidency.

The summit marks the start of the real political horse-trading after months of campaigning by ECB hopefuls led by France’s Francois Villeroy de Galhau and Benoit Coeure, Finland’s Olli Rehn and Erkki Liikanen, and Germany’s Jens Weidmann. It’s also a process that promises to keep investors in suspense as it eats into the remaining five months before Draghi leaves.

“The market might be interested in testing this future governor, if they can in some way, on their commitment to following the same kind of monetary policy stance as Mario Draghi,” said Marie Owens Thomsen, chief economist at Indosuez Wealth Management in Geneva. “Any departure from what Draghi has so strongly embodied could create volatility and disappointment.”

The mix of key jobs includes the heads of the council of leaders and the European Commission, and precedent suggests that the most likely outcome after weeks or potentially months of haggling will be a package that shares the spoils between member states. Current Council President Donald Tusk has already called for a “geographical balance.”

Tusk wants a speedy resolution, preferably at a summit in June, and the ECB would most likely agree. Policymakers are already tying the next president’s hands by promising to keep interest rates unchanged until at least next year. If the economy doesn’t pick up in the second half of the year as expected, Draghi might need to extend that guidance further before he leaves.

At the Brussels dinner, German Chancellor Angela Merkel is said to be prepared to battle French President Emmanuel Macron to nominate one of her compatriots for a top job. If her Bavarian ally Manfred Weber can’t lead the commission, a German should run the ECB instead, according to officials with knowledge of her thinking, who asked not to be identified.

Weidmann, the Bundesbank president, is the most likely German nominee by dint of his experience, but he would be a controversial choice after his opposition to many of Draghi’s stimulus policies, and that could spook investors.

France has consistently been more of a political heavyweight than Germany, and that’s one reason why Macron might get to name the next ECB head despite Draghi’s predecessor, Jean-Claude Trichet, also having been French.

Macron is spoilt for choice. The front-runner is Bank of France Governor Villeroy but he could also consider Coeure, a sitting ECB board member who is keen on the top job despite his term, which expires in December, supposedly being non-renewable. That legal hurdle could be a point of contention.

Italy could be a complication. Draghi’s departure is set to leave the nation without a seat on the ECB’s Executive Board for the first time in the single currency’s history. It also stands to be deprived of the presidency of the European Parliament — held by Antonio Tajani until the new parliament starts in July — and the High Representative for Foreign Affairs, Federica Mogherini.

The ECB’s head of bank supervision is Italian but that’s not technically a policy-making position. Prime Minister Giuseppe Conte has said Italy wants “adequate representation” in EU institutions but hasn’t specified how that applies to the ECB.

Should the larger countries fall out, smaller ones may find they’re well-placed to gain in a compromise deal. Finland in particular is ready — it has two candidates gunning for Draghi’s job — Rehn, governor of the national central bank, and his predecessor Liikanen.

All those candidates have very different profiles, Ricardo Garcia, chief Eurozone economist at UBS Global Wealth Management, said in a note this week. He added: “investors are therefore well advised to closely follow the appointment process.”