Resignation of Bundesbank President Jen Weidmann complicates German political outlook

Central banks and central bankers see themselves as economic entities but in reality they are political-economic entities. One is now increasingly seeing news of appointments/resignations of central bankers having political tones.

Germany’s political outlook has become uncertain with recent election results. To complicate matters further, Germany Central Bank’s chief – Jens Weidmann – has resigned:

Bundesbank President Jens Weidmann today asked Federal President Frank-Walter Steinmeier to dismiss him from office on 31 December 2021. He is leaving the Bundesbank, which he has headed since May 2011, for personal reasons. “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.

In his words of thanks to the staff, Weidmann refers to the joint achievements: “The environment in which we operate has changed massively and the Bundesbank’s tasks have grown. The financial crisis, the sovereign debt crisis and most recently the pandemic have led to decisions in politics and monetary policy that will have long-lasting effects. It has always been important to me that the Bundesbank’s clear, stability-oriented voice remains clearly audible. With a great deal of expertise, the departments have contributed to the discussions on the right lessons to be learned from the crisis and on the framework of the monetary union. Important regulatory changes have been adopted. The reorganisation of banking supervision in Europe has not only led to completely new supervisory structures at the ECB, but also to a strengthened role for the Bundesbank. The Bundesbank’s new responsibilities in the area of financial stability also underline our central role when it comes to a functioning financial system.”

Germany’s difficult coalition-building process has gained fresh complexity following the announcement of Jens Weidmann’s resignation shortly before the European Central bank takes far-reaching decisions on its expansive monetary policy. The departure of the Bundesbank president, unofficial leader of the ‘hawks’ on the ECB council for more than 10 years, is scheduled to take place on 31 December. The decision enshrines expansionary policies as the ECB’s preferred mode for the foreseeable future.

The timing, coinciding with the departure from office of his former boss, Chancellor Angela Merkel, will open decisions on the Bundesbank succession to possible squabbling among coalition partners of likely Chancellor Olaf Scholz. The current finance minister, from the Social Democratic Party (SPD), is trying to form a new government before Christmas. This would be the first SPD-led administration since 2005, marking a decisive break from 16 years of rule by Merkel’s conservative Christian Democrats, the last eight years in coalition with the SPD.

Although his bowing-out will be politically controversial in Germany, a veteran ECB official said it was an ‘elegant’ way of marking a new chapter in ECB-Bundesbank relations.

Weidmann’s most probable successor is Claudia Buch, a low-key economics professor who has been his deputy since 2014. Her promotion would match Scholz’s campaign to bring more women into front-line economic jobs. However other SPD leaders may favour a higher-profile, more political choice, such as Marcel Fratzscher, a well-respected former ECB official who heads Germany’s left-of-centre DIW economic research institute. Jörg Kukies, state secretary in Scholz’s finance ministry, a former Goldman Sachs banker, would be another prominent candidate.

Additionally, the Free Democratic Party and Greens, likely partners in Scholz’s putative ‘traffic light’ coalition, will wish to influence the choice both of Weidmann’s successor and of a possible new member of the Bundesbank board if the post is filled from within that body.

Weidmann’s exit focuses attention in Germany and beyond to growing antipathy between ECB policies of near-permanent monetary easing and the tighter stance habitually favoured by the Bundesbank and conservative German mainstream economic opinion.

According to one long-time Bundesbanker who knows Weidmann well, ‘The timing of the decision is a surprise, but the decision itself is not. He has made no secret of his opposition to the expansive policy the ECB is following. Over the longer term it was impossible to keep up this position. He’s going at the same time as Merkel. This is a political decision. It is taking place at a time when Germany has 5% inflation driven by a massive monetary overhang.’

‘He knows how little influence the Bundesbank president and Germany itself has on decisions taken by a majority of the ECB council. The decision-making is driven very strongly by Italy and France.’

This is 5th straight resignation of Bundesbank chief before completion of term:

Weidmann’s decision to step down after only two and a half years of his second eight-year term makes him the fifth consecutive German ECB governing council member to resign before the full completion of their term. Weidmann was previously Merkel’s chief economic adviser in the German chancellery. His decision bears some resemblance to Bundesbank president Axel Weber and ECB chief economist Jürgen Stark’s resignation seven months apart in 2011 in protest at the ECB’s easing policies aimed particularly at shoring up weaker members of monetary union. Both Weber (now chairman of Swiss bank UBS) and Stark have recently strongly criticised the ECB’s continued accommodative stance.

The Bundesbank says the 20 October announcement reflects 53-year-old Weidmann’s long-time consideration of his future career path. This follows his failure to become Mario Draghi’s successor as ECB president in November 2019. The official announcement paid tribute to ‘the open and constructive atmosphere’ at the ECB under Christine Lagarde, the new president, ‘in the sometimes difficult discussions of the past years’.

Weidmann’s frustration at his permanent membership of a ‘structural minority’ on the ECB council was a major element behind the decision. During his bouts of opposition to ECB policies, Weidmann fell out with both French President Emmanual Macron and with Draghi, now Italian premier. However frustrating this role may have proven, it was an indispensable one: his willingness to champion hawkish opinions while playing along behind the scenes was important in legitimating the decision-making processes of European monetary policy.

 

One Response to “Resignation of Bundesbank President Jen Weidmann complicates German political outlook”

  1. Markets know – The Gold Standard Says:

    […] Price inflation at 15% is the highest since the index began in 1977. Yet, Jens Wiedmann has thrown in the towel, fighting against perennial QE and low rates or negative rates. John Authers thinks […]

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