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Buba President Weidmann Resigns
The surprise announcement that Bundesbank President Jens Weidmann has decided to leave his post at the end of the year raises several questions. In this Macro Flash Note, EFG Chief economist Stefan Gerlach provides some answers.
Why did he leave?
No doubt there are several factors behind his decision.
Weidmann has been President of the Bundesbank since May 2011. This is a very demanding job, involving a gruelling travel schedule, very long work hours and security considerations imposing restrictions on his private life. Being 53 years old, he is young enough to launch a new stage of his career.
His views have put him in a small minority of hardliners in the ECB’s Governing Council who unsuccessfully sought to stop the negative interest rate and asset purchase policies. His many warnings of the risks of surging inflation and of the ECB becoming dominated by political considerations – ECB President Lagarde is a former French Minister of Finance and ECB Vice-President Luis de Guindos is a former Spanish Economy Minister – fell on deaf ears. It is not easy to spend a decade being responsible for a policy one fundamentally disagrees with.
The next German government will almost surely be led by the SPD, the Social Democratic Party, which has quite different economic views from Mrs Merkel (for whom Weidmann served as an economic adviser before becoming Bundesbank President) and the CDU. Weidmann would no doubt have lost influence in Germany. And an SPD-led government would be unlikely to propose him as ECB President when Mme Lagarde’s term ends in 2027.
What boxes should his successor tick?
In selecting a successor to Weidmann, three considerations are likely to be important.
First, he or she must be acceptable to all three parties that are likely to form the new German government: the SPD, the liberal FDP, and the Greens. While the FDP would like Weidmann’s successor to have views similar to his, the SPD and the Greens probably prefer someone who is unlikely to object to their calls for a revision of German fiscal rules to allow for more spending on infrastructure and on greening the economy, and for making the EU’s Stability and Growth Pact more flexible. This may lead to a compromise candidate.
Second, he or she must be a plausible candidate to replace Mme Lagarde as ECB president when her term ends. That calls for someone with views close to the center of the ECB’s Governing Council since the views of its median member determines policy. A monetary hardliner will carry no weight. It also means that it must be someone respected at the highest levels of the international central banking community.
Who are some possible candidates?
It seems unlikely that the position will be filled until the new German government has been formed. However, the negotiations may drag on until the end of the year, in which case Vice President Buch will serve as Acting President before the new President is appointed.
While the race has just started, several names have been mentioned by commentators:
- Isabel Schnabel is a distinguished financial economist who is professor at Bonn University and a member of the ECB’s Executive Board. She has a high public profile and is highly respected. However, her current position is arguably more important, and it is unclear whether the rules would prevent her being a candidate for ECB president when that position opens. She is thus unlikely to put her name forward.
- Professor Claudia Buch, an expert in international banking and capital flows, is currently the Vice President of the Bundesbank. While a top economist, she may lack sufficient profile among members of the German political establishment.
- Marcel Fratzscher is President of the German Institute for Economic Research (DIW Berlin), Professor of Macroeconomics and Finance at Humboldt-University in Berlin and was previously a member of the ECB’s senior staff. A heavy hitter in the German political and economic debate with views close to those of the SPD, he is a serious candidate.
- Joachim Nagel is currently the Deputy Head of the BIS’ banking department. Before that, he was a member of the Executive Board of KfW, the German state-owned development bank, and a former member of the Executive Board of the Deutsche Bundesbank. A well-respected member of the international central banking circuit, he would have the gravitas to be an effective ECB president.
- Jakob von Weizsäcker currently serves as chief economist of the German Ministry of Finance and is a member of the SPD. Previously, he was member of the European Parliament. However, he has no background in central banking and may be too close to the SPD.
- Jörg Kukies is State Secretary in the German Ministry of Finance where he is responsible for European matters and financial markets, a member of the SPD and former Goldman Sachs executive. Also, he may be seen as too politically connected and as lacking central bank experience.
What is the upshot?
The next President of the Bundesbank is likely to be closer to the centre of the ECB’s Governing Council, and therefore more influential than President Weidmann has been, and more attuned to the winds of change that are blowing through German politics. And, of course, he or she will unavoidably be a key contender to replace Mme Lagarde as ECB president in 2027. Overall ECB policy is unlikely to be much affected.