End of an era with the resignation of Bundesbank chief Jens Weidmann – .

End of an era with the resignation of Bundesbank chief Jens Weidmann – .

Jens Weidmann has decided to step down after a decade as head of Germany’s central bank, just weeks after the country’s general election and shortly before a crucial decision on the future of euro area monetary policy.

The President of the Bundesbank has been one of the most vocal critics of the ultra-accommodative monetary policy pursued by the European Central Bank, where he has waged an often lonely battle against its bond buying and interest rate policies. negative interest.

The 53-year-old said in a statement Wednesday that he was leaving for “personal reasons.” But his colleagues said he was tired of opposing ECB policies and expected those frustrations to increase as the economy recovers, inflation rises and generous stimulus measures. of the ECB become more difficult to justify.

Weidmann told Bundesbank employees in a letter that he had decided to resign at the end of the year, adding: me personally.

Her planned departure, less than two years after her tenure was extended for a new eight-year term, comes as the ECB prepares for a crucial meeting in December when it must decide how quickly to end the purchase plan bonds of 1.85 billion euros. it was launched in response to the pandemic and what stimulus to maintain after that.

Weidmann’s move also comes as German political parties are engaged in negotiations to form the country’s first ruling three-party coalition since the 1950s. Weidmann worked as an advisor to Chancellor Angela Merkel prior to her appointment as head from the Bundesbank in 2011. His decision to resign means that they appear ready to step down at around the same time.

Government spokesman Steffen Seibert said Merkel took note of Weidmann’s decision “with regret and respect”, adding that it would be up to the next government to choose its successor “to continue the legacy of stability of the Bundesbank ”.

If the new government, likely to be a left-wing coalition led by Olaf Scholz, currently finance minister, fails to agree on Weidmann’s successor by the end of this year, Claudia Buch, vice -President of the Bundesbank, would become interim head of the central bank.

Weidmann, who lost the race to replace Mario Draghi as ECB president in 2019, made the decision to step down earlier in the year, but waited until after the election to avoid giving the impression that he s This was a political decision, according to a person briefed on the matter.

He also said he should resign before Germany takes over the G7 presidency in January. The Bundesbank is due to move into a new office in central Frankfurt early next year.

As the longest-serving member of the ECB’s Governing Council and one of its most “hawkish” voices who have supported the traditionally orthodox views of the Bundesbank on monetary policy which draw on the experience of the Germany’s hyperinflation in the 1920s, its departure opened the door to a potential new turn in favor of the “accommodating” majority of the ECB.

Holger Schmieding, chief economist at Berenberg, said: “The new German government will likely appoint a less hawkish successor,” adding that it could choose Isabel Schnabel, Germany’s recent appointment to the ECB board, “or someone else. ‘one with similar dominant views’.

Buch would be another candidate if the new government wanted to make Germany the first eurozone country to appoint a woman to head its central bank.

Other potential candidates include: Jakob von Weizsäcker, chief economist at the German Ministry of Finance; Jörg Kukies, Ministry of Finance official and former Goldman Sachs executive; Rolf Strauch, chief economist at the European Stability Mechanism; and Marcel Fratzscher, director of the German Economic Institute for Economic Research.

However, many of these candidates are likely to have a more moderate approach to monetary policy than Weidmann, risking opposition from the Free Liberal Democratic Party, which is in talks with the Greens and Social Democrats to form the new government. and has more hawkish instincts.

Christian Lindner, leader of the Liberal Party, alluded to this when he tweeted that under Weidmann’s leadership the Bundesbank had “an important voice in Europe”, adding: “The FDP recommends German continuity”.

Hans Michelbach, outgoing financial spokesperson for Merkel’s CDU party in parliament, summed up these fears by saying that Weidmann’s departure was “a disastrous signal for the future.” [of] monetary and fiscal policy in Germany and Europe ”.

The Bundesbank boss has frequently warned that the ECB is underestimating inflationary pressures and that its independence could be eroded due to the reliance of heavily indebted governments on its bond buying program to maintain their bonds. low borrowing costs.

Rising consumer demand, skyrocketing energy prices and supply chain bottlenecks pushed euro area inflation to a 13-year high of 3.4% in September. German inflation, meanwhile, peaked at 4.1% in 29 years.

“It will be crucial not to look unilaterally at the risks of deflation, but also not to lose sight of the potential inflation risks,” Weidmann said in Wednesday’s letter. “And crisis measures, with their extraordinary flexibility, are only proportionate to the emergency situation for which they were created. “

He also stressed the importance that “monetary policy respects its narrow mandate and is not caught in the wake of fiscal policy or financial markets”.

Bundesbank officials have been disturbed by recent calls from some members of the ECB board to maintain a major bond buying program and relax some of its self-imposed restrictions on purchases of bonds. active, even after judging the pandemic crisis to be over.

Weidmann due to step down on Dec.31, days after the last ECB board meeting of the year, analysts said he may decide to speak out more than usual in his opposition to any potentially “dovish” changes. “.

“The fact that Weidmann often did not get what he wanted may have played a role in his resignation,” said Jörg Krämer, chief economist at Commerzbank. “It is unlikely that a new federal government will appoint a Bundesbank president who again disagrees with the majority opinion on the ECB board. “

Once dismissed by Draghi as German Nein zu – German for “No to Everything” – Weidmann spent his early years openly criticizing the increasingly unconventional policies of the ECB that flooded the markets with cheap money.

Yet after Christine Lagarde took over the presidency of the ECB in 2019 and was confronted with the Covid-19 crisis, Weidmann became less confrontational and even accepted his recent strategic overhaul, which allowed his target to be temporarily exceeded. inflation.

Lagarde said in a statement that she respects Weidmann’s decision, “but I also regret it very much,” adding: “Jens is a good personal friend I can always count on for loyalty. “

The conservative monetary doctrine of the German Bundesbank formed the basis for the creation of the euro. But over the past decade, the ECB has gradually moved away from this orthodox stance and adopted a more expansionary political approach.

This created tensions that led several German representatives on the ECB board to resign before their terms of office expired, frustrated by the conciliatory turn.

Sabine Lautenschläger resigned as a member of the ECB’s executive board in 2019, three years before her term of office expired and shortly after Draghi caused an uproar in Germany by announcing a further cut in interest rates and a restart of bond purchases.

In 2011, Jürgen Stark stepped down as chief economist at the ECB to protest his purchases of government bonds in response to the eurozone debt crisis. Earlier that year, Axel Weber stepped down as head of the Bundesbank after fiercely opposing the ECB’s strategy.


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