Jens Weidmann: Bundesbank President throws down surprisingly – economy

The great Johann Wolfgang von Goethe was also impressed by Jens Weidmann. In a brilliant speech, the soon-to-be-outgoing Bundesbank president once told of the money creation scene from the first act of “Faust II”, quoting parts of the dialogue between Mephisto, disguised as a fool, and the emperor, who is plagued by acute financial difficulties. Point of time of the lecture in autumn 2012 was cleverly chosen. The euro zone was on the verge of financial collapse, and ECB President Mario Draghi had enforced his relaxed “whatever it takes” monetary policy against Weidmann’s vote in the Governing Council. How did the shrewd head of the Bundesbank react? With Goethe, he brought an undisputed key witness to his side, who shed excellent light on “the potentially dangerous connection between the creation of paper money, public finance and inflation in Faust II”.

Weidmann has now decided to resign from his position as President of the Bundesbank at the end of the year. He points to “personal reasons”, but there is more to it than that. Goethe’s warning in “Faust II”, so his fear, is still not heeded by the ECB. Inflation rates in the euro zone are rising for a long time. But will the ECB quickly flip the switch in an emergency and end the loose monetary policy? Hardly, he evidently feared: Weidmann lacks enough supporters in the ECB council who think like him for such a step. At his farewell warns the head of the Bundesbankthat the ECB should “not lose sight of the dangers of inflation (…)”.

The interesting thing when choosing a successor will be whether the new Bundesbank leadership should take a new course. And also whether the new coalition is strategically preparing for the successor to Lagarde in six years. In this case, it would be wise to appoint Isabel Schnabel, ECB director, to succeed Jens Weidmann. She would have a good chance of inheriting from this position in six years from Lagarde. Schnabel cannot be assigned to any party and is therefore considered to be well compatible.

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Jörg Kukies is also considered a promising candidate. Olaf Scholz made the former Co-Germany boss of Goldman Sachs his State Secretary for Finance and Europe in 2018. In the past three years he has been involved in negotiating many European decisions, for example on the banking union. Claudia Buch, Vice President of the Bundesbank, is also in discussion. However, your chances are rated low. She is considered to be highly skilled in the field, but at the same time very reserved.

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As an institution, central banks can raise unlimited amounts of money at the push of a button. It’s a magical ability. But it is also dangerous, because in the end there is a threat of inflation. The fear that the ECB could be instrumentalized by the finance ministers of the euro zone has been a constant concern of Weidmann in his more than ten years as President of the Bundesbank. Instead of pushing through urgent reforms at home, these countries hoped for zero interest rates and bond purchases from Frankfurt.

At its core, the ECB has always been about the same controversial question since the global financial crisis broke out in 2008: How loose can monetary policy be? Weidmann was the only one in the Governing Council to vote against Draghi’s “Whatever it takes” promise. The Italian ECB President was able to prevent the collapse of the monetary union with his famous London speech in 2012. The financial markets had already started betting on the end of the common currency.

Draghi’s reply to his German colleague: You couldn’t say “No to everything”. Weidmann felt wrongly attacked. The Bundesbank president feared from the start that the ECB would hardly be able to end its loose monetary policy. The addictive factor on the financial markets and in the euro countries will increase over time. Greetings from “Faust II”.

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Weidmann sees his assessment confirmed: The ECB has been pumping trillion euros into the financial markets for a decade. There were always new reasons, most recently to alleviate the consequences of the corona pandemic. In the meantime, prices are rising sharply, in the euro zone over three percent, in Germany over four percent. Most central bankers in the ECB are convinced that this price surge will pass. But what happens if inflation continues to rise? Weidmann thinks that the zero interest rate policy will then have to be ended. But that does not seem to be able to win a majority.

Weidmann has been at the helm of the Bundesbank since 2011, and his contract runs until 2027. During his tenure, he improved the internal discussion climate and called for different opinions on specialist topics. Weidmann also broke new ground in external presentation. So he sometimes went on podiums and played soccer in front of the camera. Such actions were previously considered unimaginable for a Bundesbank president. ECB President Christine Lagarde said on Wednesday that she has “respect for Jens Weidmann’s decision to step down from his position as President of the Deutsche Bundesbank after more than ten years in office, but I also deeply regret his decision. Jens is a good personal friend, I could always count on his loyalty. ” Federal Chancellor Angela Merkel (CDU), whom Weidmann once brought to the Chancellery as an economic advisor, thanked him for his work “in these very challenging years of his term of office in terms of monetary and financial policy”. Government spokesman Steffen Seibert announced that it would be the task of the coming federal government to “find a successor”.

Weidmann’s decision to withdraw has apparently matured in the past few months. He wanted to wait until after the general election to make the announcement. The outgoing Bundesbank President has to go into a two-year cooling-off period from January. During this time he is not allowed to take any jobs in finance. Weidmann is retired like a political official and receives a certain percentage of his earnings as a pension. We hear that he has not had a new job offer.