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.