Germany’s ruling centre-right coalition parties are expected to agree this week to appoint Jens Weidmann, chief economic adviser to Angela Merkel, the German chancellor, as the youngest president of the Bundesbank. The move follows the surprise resignation of Axel Weber as head of the fiercely independent German central bank.
Mr Weber, who will leave at the end of April, had been expected to be Germany’s candidate to be the next president of the European Central Bank. His departure has left Ms Merkel without an obvious alternative for the ECB job.
Showing masterly timing, Mario Draghi, Italy’s central bank governor - fast becoming the frontrunner to succeed Jean-Claude Trichet as European Central Bank president - has a full-page interview in today’s heavyweight Frankfurter Allgemeine Zeitung.
Its publication comes as Angela Merkel’s government scrambles to decide who it should back for the ECB job after Bundesbank president Axel Weber self-destructed last week.
Under the headline “everyone should follow Germany’s example,” Mr Draghi not only draws lessons from Germany’s impressive economic rebound. He says exactly the sorts of things a German would want to hear from a central banker – the importance of combating inflation and of pursuing stability-orientated politics, how national governments should take responsibility for sorting out their own finances, etc.
Bundesbank president Axel Weber said a lack of political acceptance in the eurozone for his hawkish monetary views drove his abrupt decision to step aside as Bundesbank president and to exit the race for European Central Bank presidency. Mr Weber will step aside in April, a year before his term would have expired.
Political reactions to his “clear positions” on important ECB decisions, such the purchase of government bonds, had added to his reluctance to follow Mr Trichet, Mr Weber told Der Spiegel at the weekend. “These positions might not have always been helpful for my acceptance in some governments,” he said in the first public explanation of his unexpected decision, which has thrown the race for the ECB presidency wide open and diminished the German government’s chances of pushing through their own candidate. (Jens Weidmann, Ms Merkel’s economic adviser, is widely seen as the frontrunner.)
Axel Weber has indicated he will not serve a second term as Germany’s Bundesbank president, but left open whether he might succeed Jean-Claude Trichet as president of the European Central Bank later this year. The Bundesbank president told a private meeting on Tuesday that he might not want to serve a further eight-year term when his current mandate expires in April 2012, according to a Bundesbank source.
Leaked reports of comments led to a flood of speculation on Wednesday that the 53-year-old former academic economist was also withdrawing from the race to succeed Mr Trichet, who will leave the ECB at the end of October, and that he was planning a move to Deutsche Bank, Germany’s largest bank by assets.
If Dublin successfully avoids using the European Union’s rescue fund to resolve its banking and fiscal problems, it will probably win friends in Berlin. Germany’s exact view on what Ireland should do is murky, but officials are adamant that Berlin has not pressed for outside intervention.
That makes sense. For Angela Merkel, chancellor, and Wolfgang Schäuble, finance minister, an EU bail-out for Ireland would undoubtedly mean more unwelcome headlines in Bild of the sort the mass-market newspaper ran earlier this year over profligate Greeks and how German taxpayers were paying for the excesses of other eurozone countries.
But the view in Frankfurt is different.
“Only one person can now stand in the way of Axel Weber, and that is Axel Weber.” This from an entertaining article by Wolfgang Munchau, who points to Professor Weber’s recent opposition to the ECB on matters such as bond buying and the mooted permanence of the European Financial Stability Fund. The Bundesbank president, widely considered a front-runner to succeed Jean-Claude Trichet next year, wants the ECB to phase out its asset purchase scheme, wants an early exit from low interest rates and favours the eventual phasing out of the EFSF. “It is,” says Mr Munchau, “hard to find someone who is more out of tune with the EU’s majority view on economic governance.” Mr Trichet seems to agree.
ECB governing council decisions are formed by consensus and not by vote. So the role of president is of peculiar importance, in building and communicating consensus – a decision reached by very human means, and not simply by a tally of hawks and doves. Mario Draghi – another front-runner – may possess more of these skills. But, Mr Munchau concludes, if the race for presidency turns into a two-man fight, the likely victor will be a third man, “nobody knows who, but most probably a northern European with a hawkish mindset. There is a long tradition in the EU that the top jobs do not go to those best qualified, but to those who happen to have the right nationality at the right time.” Well worth reading in full.
Axel Weber has urged the ECB to consider exiting its support measures, saying the risks of waiting were greater than the risks of doing nothing. At a speech in New York on Tuesday, AFP reports the Bundesbank president saying: “It is necessary, from a monetary policy point of view, not to postpone the exit from non-standard measures for too long. There are risks both in exiting too early and in exiting too late. I believe the latter are greater than the former.”
Professor Weber, who is in the running to become ECB president next year, also repeated his view that the central bank’s bond buying program should come to an end, saying: “These securities purchases should now be phased out permanently as part of our non-standard policy measures.” The statements are on message for the ECB governing council member, who opposed the bond buying programme, and recently dismissed its role as “minor”. ECB bond purchases fell to near-zero levels last week, having shot up the week before.
The problems Axel Weber, Bundesbank president, has faced over Thilo Sarrazin, the controversial Bundesbank board member, whose recently-published book shocked the country’s establishment, continue to attract headlines in Germany. The damage to the famously-reticent Bundesbank’s reputation was seen as a threat to Mr Weber’s chances of succeeding Jean-Claude Trichet when the European Central Bank president’s non-renewable eight year mandate expires in October 2011.
The Frankfurter Allgemeine Zeitung has been investigating the role played by Christian Wulff, Germany’s federal president, in negotiating a deal by which Mr Sarrazin agreed to resign. The thrust of its coverage is that Mr Wulff, in effect, imposed a deal on the Bundesbank, which ended up withdrawing its previous criticism of Mr Sarrazin and thanking him for his work as a board member.
Does all this matter?
The European Central Bank appears to have entered calmer waters, at least for now. With the eurozone economic recovery on track, Jean-Claude Trichet, president, wanted to keep the optimism in check at his regular monthly press conference this afternoon.
Perhaps, the ECB had learnt a lesson from the false hopes created in the US? But it is easier to be cautious when things are going well, than to try to spread a little optimism when things are going badly.
August’s news lull has just been rudely broken by an extraordinary interview Axel Weber, Bundesbank president, gave to Bloomberg Television. In it, Mr Weber set out what he thought should happen in the next few months with the ECB’s liquidity operations – something that was only supposed to be discussed behind closed doors ahead of the ECB meeting on September 2. For good measure, Mr Weber dismissed the ECB’s controversial bond purchasing programme, which he opposed, as having had “a minor role only”.
I suspect all this will not go down well at all with other ECB governing council members. Hitherto, Jean-Claude Trichet, ECB president, has generally kept everyone in line, and announced the big decisions himself. If Mr Weber is allowed to speak out publicly, why not everyone else? The lack of verbal discipline is all the more telling as Mr Weber is a possible candidate to succeed Mr Trichet next year.
Will it help or hinder Mr Weber’s chances?