Jens Weidmann has been head of the Bundesbank since May 2011, and this year he announced his resignation.
(Photo: AP)
Jens Weidmann is leaving. Inflation is coming. That is not a good signal for the stability culture in Europe. After ten years at the top, Weidmann is leaving the Bundesbank, slightly frustrated. Even his predecessor and mentor Axel Weber threw the chunks down in the dispute over the crisis policy of the European Central Bank (ECB).
It will be interesting to see how high the tolerance for frustration of Weidmann’s successor Joachim Nagel is.
Because not only in the ECB, but also in the EU member states, the balance has shifted. The new dream duo is the Italian Prime Minister Mario Draghi and the French President Emmanuel Macron. After the departure of Chancellor Angela Merkel, a leadership vacuum emerged in Europe. Draghi and Macron made clever use of this interregnum.
It is the first time in a long time that Europe’s most important axis does not connect Paris and Berlin, but now Paris and Rome. The English business magazine “The Economist” recently gave Italy excellent marks in economic policy. That gives Draghi a tailwind.
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He and Macron have now hooked up to enforce softer debt rules in the EU. Olaf Scholz showed a certain openness to this during his visit to Rome on Monday. The new Chancellor promised “flexibility” in the debt settlement. But he did not issue a free ticket for reforms. But there has been movement in the debate.
More debt and less growth
It will be quite right for Scholz to be able to refer to his liberal finance minister Christian Lindner when the demands from southern Europe overshoot the mark. Neither Lindner nor Scholz want a permanent debt union. The Chancellor still has to find his position. Even if it doesn’t work without Germany as the largest and strongest economy: The engine is currently purring French-Italian. When in doubt, that means more debt and less growth.
Macron, who has an election ahead of him, cannot ignore the inflation issue. But for their more debt-oriented policy, Paris and Rome have an ally in ECB President Christine Lagarde. The stubbornness with which she is sticking to the loose monetary policy amazes not a few of her central bank colleagues, especially in the Anglo-Saxon region.
Weidmann was the hawk among the pigeons
With Jens Weidmann, Lagarde’s greatest critic is now leaving the ship. The two appreciated each other personally. When it comes to assessing inflation, however, they are worlds apart. Monetary policy is always about expectations and narratives.
If people and companies believe in low inflation, that’s half the battle. Weidmann stood for such a stability-oriented narrative. He was the hawk among the pigeons. Weidmann was a councilor in tone, with an eye for economic realities, but also tough on the matter. Some political observers are already saying in Berlin and Frankfurt: We will miss Jens Weidmann.
The expectations of his successor Joachim Nagel are enormous. He can become Christian Lindner’s reinforcer against the desires from France and Italy. It makes a difference whether the Bundesbank representative at the ECB takes debt and inflation lightly. Or whether he upholds the tradition, in which the stability of the monetary value is in the shrine.
More: Pros and cons: The ECB must finally change course in monetary policy