PRO Business MS

Jens Weidmann, who this week announced his departure from the presidency of the Bundesbank after a decade-long term, played his role as the most prominent dissenting voice on the European Central Bank’s governing council admirably. Labelled by former ECB president Mario Draghi as nein zu allem, no to everything, Weidmann articulated the view of monetary hawks — that the ECB’s extraordinary policies were inflationary and damaging to market discipline — at the highest levels. He provided scepticism over the institution’s forays into areas such as preventing climate change. Yet during a decade of ad hoc responses to financial crises, the extension of extraordinary monetary policies and the creation of the joint EU recovery fund, at every stage the German establishment ultimately threw its support behind the single European currency and the policies embarked on by the ECB to keep it together. While chancellor Angela Merkel, who made those fateful decisions, will soon depart the scene as well, few now doubt the commitment of Europe’s largest economy to the single currency. That means Weidmann’s successor will matter a great deal less than the role once did to the future of the eurozone. Weidmann’s hawkish views, in keeping with many in his country and the reputation of the Bundesbank, meant he was often in the minority and would be passed over to become the next ECB president in favour of Christine Lagarde, with no prior experience of central banking. Still, to his considerable credit, he was a team player, often defending the ECB against unreasoned criticism in his home country. Critically, he rejected the potentially explosive assertion of the constitutional court that the ECB’s quantitative easing programme represented monetary financing. His successor is likely to be less hawkish. A decade of stubbornly low inflation in the eurozone, despite loose monetary policy, has damaged the case for monetary orthodoxy — in fact, in its latest strategy review the ECB integrated its “monetary analysis”, one of the last vestiges of the monetary targeting that built the German central bank’s reputation, with its “economic analysis”. The next Bundesbank president will be selected by a three-party coalition that includes the centre-left Social Democrats and the Greens alongside the pro-business liberals the Free Democrats. Negotiations over the future finance minister and the central bank chief are likely to be conducted in tandem. Whoever the coalition partners nominate as the next president of the Bundesbank, the most influential German monetary policymaker will instead be a member of the executive board of the ECB. That many are asking whether Isabel Schnabel, who currently has responsibility for the ECB’s market operations, would want to leave that role and become Bundesbank president reflects how power has fundamentally shifted between the Frankfurt-based institutions. Either way, Weidmann’s career showed that there was ultimately nothing for the eurozone’s institutions to fear from forceful dissent. Even while it annoyed Draghi, disagreement between members of the ECB’s governing board, which includes the head of the national central banks, did not prevent the ECB from acting decisively in moments of crisis. If anything, a loud voice reflecting the views of more hawkish member states, often in the north, helps build consensus and ensure that the institution — protected from political influence by international treaty — truly reflects the views of all it serves.

Germany’s central bank chief Jens Weidmann on Wednesday submitted his resignation to President Frank-Walter Steinmeier, the Bundesbank in Frankfurt said in a statement. 

“I have come to the conclusion that more than 10 years is a good measure of time to turn over a new leaf — for the Bundesbank, but also for me personally,” Weidmann wrote in a letter to the Bank’s staff on Wednesday.

Weidmann, who has been the president of the Bundesbank since May 2011, is set to leave office on December 31.

Weidmann warns against looking at one-sided risks 

In his letter on Wednesday, Weidmann highlighted the “important, stabilizing role played by monetary policy during the during the pandemic as well as the successful conclusion of the strategy discussion as an important milestone in the European monetary policy.” 

He said that moving forward, it will be crucial for the European Central Bank (ECB) “not only to look one-sidedly at deflationary risks, but not to lose sight of the inflationary dangers either.”

National central bank governors in the 19-country eurozone have a seat on the ECB’s governing council. Weidmann had repeatedly criticized stimulus efforts by the European Central Bank (ECB) as too loose. 

His resignation comes as the ECB faces difficult questions over tackling rising inflation and winding down its massive COVID pandemic stimulus program.

ECB chief praises Weidmann’s ‘search for common ground’

German Chancellor Angela Merkel said she regretted Weidmann’s decision and that nominating his successor will be a job for the new German government when it is formed, a spokesperson told reporters.

Commenting on Weidmann’s departure, ECB President Christine Lagarde hailed his loyalty and willingness to find a compromise.

“Jens is a good personal friend on whose loyalty I could always count,” Lagarde said in a statement.

“While Jens had clear views on monetary policy I was always impressed by his search for common ground in the Governing Council, by his empathy for his Eurosystem colleagues, and his willingness to find a compromise.”

Youngest ever Bundesbank chief

Weidmann, now 53, was the youngest Bundesbank president when he took over the role from Axel Weber in 2011. Weber had quit in a dispute over the ECB’s policy to control the crisis at the time.

Before his role as the Bundesbank chief, Weidmann served as Chancellor Anegla Merkel’s economic adviser for five years.

Weidmann studied in Paris and Bonn. In 1997, he started a two-year stint at the International Monetary Fund.

The promotion caps a remarkable rise for Mr Weidmann, who had previously worked at the IMF in Washington and as head of the monetary policy division at the Bundesbank, before Ms Merkel brought him back to Berlin as her chief economic adviser in 2006. However, given the Bundesbank’s fiercely guarded political independence, Mr Weidmann’s closeness to Ms Merkel means that his promotion is not uncontentious. Carsten Schneider, a finance expert from the opposition Social Democrat party, said “there is a danger of the Bundesbank becoming an extension of the chancellor’s office. That would be unfortunate. It’s up to Jens Weidmann to dispel this worry.” But Hans-Werner Sinn, head of the Munich-based Institute for Economic Research (Ifo), played down such concerns, pointing out that candidates for positions at the Bundesbank usually had political connections. “But once they are in office, they are completely reliable and independent”, he said. “I don’t see a problem.” Mr Weidmann replaces his mentor Axel Weber, who resigned unexpectedly last week. Mr Weber had been expected to be Germany’s candidate to succeed Jean-Claude Trichet as president of the European Central Bank when his term expires in October. But his abrupt departure has left Ms Merkel without an obvious candidate. Mr Weidmann’s move to the Bundesbank has been interpreted by some analysts as indicating that Ms Merkel may decide not to press for a German to run the ECB. However, government sources in Berlin cautioned that no such decision had yet been taken. The ECB’s six-man executive board already includes a German – Jürgen Stark, whom Ms Merkel could have moved to the Bundesbank instead of Mr Weidmann if she had wanted to make space for a German in the top job. “I think it is some kind of indication. They are certainly not clearing the way for a German,” said Erik Nielsen, European economist at Goldman Sachs. However, last week Wolfgang Schäuble, the finance minister, said that Germany had never said it would insist on a German for the top ECB job.