There is more to talk about in the coalition negotiations: the top of the Bundesbank has to be filled after Jens Weidmann has made his office available. An economist and an economist are considered to be particularly promising candidates.
There is a new personality in the coalition negotiations of the Ampel partners. In view of Jens Weidmann’s resignation, the SPD, Greens and FDP have to agree on who will be the new Bundesbank president. The decision is of tremendous importance. Because the Bundesbank has an almost mystical reputation in this country as a haven of monetary stability, and the boss of this institution has a decisive influence on the course of the European Central Bank. Just as important: it has a major influence on how the monetary policy of the ECB is assessed in public in this country.
Weidmann solved this well in his own way. In the German public he was mainly perceived as a critic of the loose monetary policy, and was even considered a lone fighter for stable prices. With his regulatory thinking, he actually belonged to the minority in the Governing Council. At the same time, however, he was a team player who, despite all his skepticism, supported most of the decisions and defended them publicly.
Weidmann was appointed President of the Bundesbank as the successor to Axel Weber in 2011 after his predecessor threw in the towel in the dispute over the ECB’s crisis policy. He ensured that the relationship between the ECB and the Bundesbank relaxed noticeably.
Weidmann’s decision is not really surprising, although he only started a second eight-year term in 2019. Even if he assures that his move has nothing to do with the result of the federal election: The approaching traffic light government offers him a good opportunity to make his post available.
He will not have made the decision spontaneously. According to reports, Weidmann has been playing through the idea since he had to give way to Christine Lagarde in the appointment of the ECB head. Now he is leaving his office around the same time as Chancellor Angela Merkel, for whom he worked as an economic advisor in Berlin, before taking over the management of the Bundesbank in May 2011.
Warning of inflation risk
Who will be Weidmann’s successor is completely open. Only the procedure is certain. The head of the Bundesbank is appointed by the Federal President on the proposal of the Federal Government. Theoretically, the grand coalition still in office could determine the successor to take over the office on January 1st. But that is actually impossible. Even if the Union should try, the SPD should prevent it. With a probability bordering on certainty, the new coalition partners will come to a joint decision, and the appointment of the Bundesbank’s top management is likely to be part of a compromise on positions and influence.
One economist and one economist are currently considered to be particularly promising candidates. One is Isabel Schnabel, a member of the ECB Executive Board. On the other hand, Marcel Fratzscher, head of the German Institute for Economic Research and one of the best-known economists in Germany. He is considered to be close to the SPD and was an advisor to the Ministry of Economic Affairs when it was led by the Social Democrat Sigmar Gabriel. Fratzscher is a professor at Humboldt University.
Isabel Schnabel is one of the most influential economists. She is responsible for the market operations department in the ECB’s board of directors and is therefore responsible for the implementation of monetary policy, including the controversial trillion dollar bond purchase program in Germany. She was previously Vice President of the Bundesbank and was one of the “economic wise men”. She specializes in banking regulation and financial crises and, like Fratzscher, is considered to be opinionated, communicative and a staunch European.
In the meantime, Weidmann is consequently leaving the Bundesbank and the ECB with a warning of inflation. It will be crucial “not to look one-sidedly at deflation risks, but also not to lose sight of prospective inflation risks”. A stability-oriented monetary policy will only be possible in the long term if the regulatory framework of the monetary union continues to ensure the unity of action and liability, monetary policy respects its narrow mandate and does not get caught up in fiscal policy or the financial markets. “This remains my firm personal conviction as well as the great importance of the independence of monetary policy.”