Bundesbank boss Weidmann: The eternal warning goes

Today Bundesbank President Weidmann is taking part in an ECB Council meeting for the last time. It has become more and more lonely around the “falcon”. He gives up his post at the end of December.

She had spared no effort or expense: ECB President Christine Lagarde had everything worked out in detail when she met the ECB Council for the first time in a luxury hotel in the Taunus shortly after taking office in autumn 2019. There was good food and expensive wine for the illustrious group. The aim was to lighten the mood in the committee. Because under her predecessor Mario Draghi there had been quite a few conflicts.

Charm offensive works initially

One who had been hit particularly often was Bundesbank President Jens Weidmann. The leader of the so-called hawks in the Governing Council had repeatedly pushed for a conservative monetary policy that above all maintains price stability and stays out of everything else as much as possible. With this view and open criticism, he had clashed with Draghi again and again. He hadn’t forgiven him for that.

The idea of ​​the “reconciliation dinner” in the luxury hotel seemed to work: there was no longer any open exchange between Lagarde and Weidmann. It became quieter around the Bundesbank boss. The pandemic did the rest. But then, in mid-October, Lagarde’s phone suddenly rang. At the other end “her friend Jens”. He informed her in a friendly but firm manner that the end of December would be over for him – as Bundesbank President and as a member of the ECB Council. The wires glowed between Frankfurt and Berlin. But the decision was made.

Speculation about the reasons for withdrawal

Jens Weidmann is leaving the Bundesbank after a good decade. In a letter to around 10,000 employees, he gave personal reasons. He was “convinced that more than ten years is a good time to start a new chapter – for the Bundesbank, but also for me personally.”

Much has been speculated about the truth since then. A lack of support from the new traffic light coalition, for example, which, especially among the Greens, could also envisage a less strict monetary policy. However, the good and trusting cooperation between the ex-finance minister and now Federal Chancellor Olaf Scholz (SPD) and Weidmann during the grand coalition speaks against this.

The head of the ECB seemed to have been identified

The thesis that Weidmann is disappointed with his former mentor, ex-Chancellor Angela Merkel (CDU), should be a little closer to reality. Your decision to block Weidmann’s way to the top of the European Central Bank hit the 53-year-old hard – both personally and in view of the importance of the office.

Merkel, who had always promoted her former economic advisor and who took office as the youngest Bundesbank president in May 2011, was in a dilemma in the summer of 2019: It was actually a foregone conclusion that a German would face the president when the Italian Draghi ended in November 2019 -Chair of the ECB would move up. This set the course for Weidmann.

But at the same time, the top of the EU Commission had to be re-appointed. When the chance arose to promote her party friend Ursula von der Leyen there, Merkel decided in favor of her colleague – and against Weidmann. Two new Germans in top European positions at the same time, even Berlin could not push through – especially since the Elyseépalast in Paris was heavily involved in this solution in order to help the French Lagarde in the Frankfurt Eurotower.

Draghi’s allegation of disloyalty

So Weidmann fell through the cracks; a circumstance he found difficult to relate to. Even then, there was always speculation that he wanted to throw in the towel. Weidmann stayed out of loyalty and also because of the looming corona crisis. But it became increasingly clear to him that he hardly had any friends on the Governing Council either. This was ensured not least by Draghi, who had never forgiven Weidmann for the fact that in the summer of 2012 the Bundesbank head was the only one in the ECB Council to vote against a measure to save the euro that Draghi had initiated: the possibility, directly to buy short-term government bonds from distressed euro countries.

The instrument was never used, but Draghi took revenge for the German’s lack of loyalty, which had also met with great displeasure in the Governing Council. In the summer of 2019, when his follow-up debate was in full swing, Draghi teased at the annual ECB conference in Sintra, Portugal: It is not helpful and contributes to populism if national central banks do not support important decisions of the ECB Council. Draghi did not mention the name Weidmann, but everyone knew who was meant.

The group of “falcons” is getting smaller and smaller

Otherwise, many in the Governing Council no longer wanted to hear Weidmann’s perpetual warnings. He tirelessly warned that the ultra-loose monetary policy was triggering asset bubbles in the stock and real estate markets, that the limit for non-constitutional state financing by the ECB had largely been reached, and that the central bank would have to concentrate more on fighting inflation. But the group of so-called falcons that Weidmann led was getting smaller and smaller.

The doves as representatives of a loose monetary policy became more and more powerful, some of Weidmann’s comrades-in-arms made themselves rare: The new central bank chief of Finland, Olli Rehn, in contrast to his predecessor, suddenly also represented the views of the doves, the central bank chief of the Netherlands who was close to the hawks , Klaas Knot, gave Weidmann verbal support, but in the end he often gave in.

The new German ECB director Isabel Schnabel, an economist and unrelated to the Bundesbank, represented the line of the pigeons from the start. In the end, the Bundesbank boss could only really rely on his Austrian colleague Robert Holzmann, who is now also preparing to take on Weidmann’s role as a warning.

Bundesbank with less and less influence

Otherwise, the Weidmann era is also a symbol of how the Bundesbank has massively lost influence within the ECB. This was particularly evident in the grueling debate about the ECB’s new strategy. The target of the inflation rate, which has been in effect since the summer, was set at exactly two percent – a break with the Bundesbank tradition, which had always aimed for values ​​close to but below two percent. Weidmann succeeded with a lot of word acrobatics to water down the new goal a little. But in fact the decision made under the leadership of Lagarde and her chief economist Philip R. Lane was a defeat for the Bundesbank.

Just like the removal of the monetary analysis from the statements that have been published after every press conference since the founding of the ECB. At the urging of the Bundesbank, whose representatives traditionally pay close attention to the growth of the money supply, this monetary analysis was, at least formally, always on an equal footing with the economic analysis. The latter examines influences from real economic events. Since the new strategy came into force, monetary analysis no longer plays a significant role in the ECB. Many southern euro countries could never do anything with it.

Several Germans threw down

The frustration of most of the German representatives in the ECB Council, who are increasingly on the losing side, is nothing new: Weidmann’s predecessor, Axel Weber, therefore dropped out and preferred to pursue a career at the Swiss bank UBS. The respected German chief economist Jürgen Stark disliked the beginning of the loose monetary policy so much that he left the board in 2012 at the height of the euro crisis. Two years ago, ECB board member Sabine Lautenschläger was fed up with monetary policy and announced her resignation quite surprisingly.

So Weidmann is now the next victim of a development within the ECB that no longer has much to do with the Bundesbank model – a model that the German representatives favored and implemented when the ECB was founded, because this is the only way they can benefit the local population At that time the rather unpopular euro and the abolition of the D-Mark were able to make palatable.

ECB as an auxiliary anchor for debtor states

Today the ECB no longer stands primarily for fighting inflation, but above all as a political guarantor for the monetary union and as an anchor of aid for over-indebted member states. However, this positioning contradicts the tradition of the Bundesbank, which is why German monetary authorities cannot get used to it. And it is precisely this development that is likely to be the real reason for Weidmann’s resignation.

So the calm, diplomatic, but uncompromising champion for the supposedly good cause goes away. At just 53 years of age, the trained economist with a lot of international experience should not end: After a “cooling off phase”, the world of science and business are open to Weidmann. We’ll surely hear from him again.