European sources said in a Reuters report on Wednesday that Axel Weber, head of the Bundesbank, Germany’s central bank, will not seek the top post at the European Central Bank (ECB) when Jean-Claude Trichet’s term expires in October. The news surprised markets and caused the euro to fall. At the same time, banks cut back on taking in ECB funding, and the Euribor rose to its highest level in a year and a half after falling for two days.

According to a Reuters report, Weber was considered the top candidate for Trichet’s post; he is known for being tough on inflation and very orthodox in his monetary views. He had offended some of Germany’s euro zone partners, including France, in 2010 with his public opposition to the ECB’s program to buy indebted states’ bonds. Other countries worried that his hard line on policies would cause problems if he succeeded to Trichet’s spot at the ECB.

James Nixon, an economist at Societe Generale, was quoted in the report as saying, "I think it's been clear for some time that Weber was too abrasive a character for the role of ECB president." He went on to add, "If Weber had been president he would have been a very hawkish president, but now I expect we will have a character that is more of a committee player."

While Weber’s withdrawal does not necessarily mean that a German will not get the job, Mario Draghi, head of Italy’s central bank, has been seen as his chief rival for the spot. Draghi has chaired the Financial Stability Board and in that post has been responsible for coordination of global financial regulation since the financial crisis of 2008-2009.

Even though euro zone political heads will select Trichet’s successor, it is largely seen as a decision between Angela Merkel, Germany’s chancellor, and Nicolas Sarkozy, president of France. Berlin has denied that the post will be part of the negotiations surrounding the new “comprehensive package” that Merkel has advocated for bolstering the European Financial Stablity Facility (EFSF).

On Tuesday, banks had scaled back on the amount of 1-week and 1-month funding from the ECB by nearly 70 billion euros ($95.687 billion). The rise of Euribor rates to a 1½-year high followed, with the three-month rate going from 1.079% to 1.089% and the six-month going from 1.336% to 1.350%. Other rates also rose; the overnight rate abandoned its five-month low of 0.347% to hit 0.677%.