Why you should care
Because this hawkish economist would reshape monetary policy.
The man who would be king of European finance bounds into Margarete, a stylish modern restaurant not far from the headquarters of the European Central Bank, 10 minutes ahead of schedule. He looks much like any other hotshot middle-aged German executive. He wears an unflashy navy suit, well-cut around his slim frame. His blond hair is thinning, but there are few specks of gray and his skin and eyes have the brightness of a man many years his junior.
But Jens Weidmann is no run-of-the-mill company boss. As head of the Bundesbank, he is in charge of what is possibly Germany’s most cherished institution. As the French politician and former head of the European Commission Jacques Delors once quipped: “Not all Germans believe in God, but they all believe in the Bundesbank.” What is more, we are meeting as Frankfurt is abuzz with speculation over Weidmann’s next move and whether he will replace the urbane Italian financier Mario Draghi at the helm of the ECB. Weidmann has been cagey about declaring himself as a potential successor to a man with whom he has had very public disagreements over economic policymaking. But few are in doubt he wants the job.
There is one question on my mind: Can a German snatch the most powerful position in European finance?
Glancing at his bodyguard, Weidmann jokes that his security detail haggle over who has the misfortune to accompany him on his daily 13-floor walk to the top of the Bundesbank building. “They draw straws for who has to come with me,” he says, adding that the routine leaves him ready to face the day. “It’s manageable,” he says. The hike to the summit of the ECB’s 45-story headquarters is likely to prove more demanding. A short walk along the Main River from Margarete, the bank’s two steel towers are surrounded by a high fence that cuts it off from the rest of the city. It is emblematic, some would say, of an institution that has never found itself quite at home in Frankfurt, or indeed Germany.
I try to persuade my guest to have a drink. He refuses, then relents. When the wine arrives, he takes a sip and looks unimpressed. This is a man used to getting what he wants — and quickly. When he took on the Bundesbank presidency in 2011, at the age of 43, he was the youngest ever in the job. He took over after a stint as head of the powerful economic and financial wing of Angela Merkel’s chancellery — one of the youngest incumbents of that role too. Concerns among Bundesbankers that his time in Berlin would have turned him into Merkel’s puppet were unfounded. His Bundesbank has maintained its hawkish reputation as a guardian of strong currency and low inflation — often much to the annoyance of the ECB. I ask if it was easier to work with the chancellor or with Draghi.
“In a sense it was easier to work with Merkel,” he says. “I got along with her quite well given that she has a very analytical approach. At the end of the day she has to take the decision, but up to then, you can really have a good discussion — otherwise I would not have stayed for six years. It’s also easy to converse with Mario — he is a very cultured guy, you can talk about a lot of things with him.”
It is an uncharacteristic touch of diplomacy. I think of his not-so-subtle sniping at Draghi over recent years — and turn to the menu.
Weidmann chose Margarete because of its “down-to-earth style with a regional component.” For all his undoubted ambition, there is something homespun about him. Maybe it is because he has never strayed far from his roots. He lives in a village in the vineyards of the Rheingau in a home he bought during his first of two stints at the Bundesbank between 2003 and 2006. It is easy to see how living in such an idyllic setting during the prosperity of recent decades could convince you of the economic benefits of the German way of doing things.
His first ambition was to be a firefighter — apt, I suggest, for a generation of central bankers forced to take an interest in disaster management. “In a sense it worked out, yes,” Weidmann agrees. He studied monetary economics in Bonn, Paris and Aix-en-Provence, where he picked up a love of cooking — he makes a mean green tea ice cream. His time in France also taught him that it is not “mutually exclusive” to be a good European and be proud of the country you’ve come from. “You are German and you shouldn’t try to negate that or hide that,” he says. “I would say that diversity [is] a good thing for Europe.”
He argues that if monetary union is going to work, then the question of nationality must be put to one side.
Weidmann completed his doctorate under Manfred Neumann, an academic who before his death in 2016 fiercely attacked the ECB’s response to the financial crisis. While less pointed than his erstwhile tutor, the Bundesbank president has also been a thorn in Draghi’s side. The Italian has not appreciated Weidmann’s criticism of his crisis-era measures, which have done little to improve the ECB’s image in Germany. Soon after Draghi took over the ECB, Bild, Germany’s best-selling daily newspaper, handed him a Prussian helmet as an endorsement of his early remarks. But his subsequent pledge to do “whatever it takes” to shore up the euro revived the old suspicions of him. For a nation that views debt as a sin (the word for it, schuld, also means “guilt”), the ECB’s aggressive attempts to keep the European show on the road — which have included promises to spend trillions buying government bonds and savage cuts to interest rates that savers here hate — have come to symbolize everything the euro’s enemies detest about the single currency. So much so, that Bild in 2012 asked Draghi for the Prussian helmet back, although it did not bother to claim it.
Among the young, cosmopolitan diners in Margarete, you would probably struggle to find fierce critics of the ECB’s crisis-era measures. But older Germans — including members of the country’s economic and political establishment — have delivered fierce attacks on Draghi. He was even accused in April 2016 by former finance minister Wolfgang Schäuble of aiding the rise of the right-wing Alternative for Germany party.
Does Weidmann think it has made matters more difficult for the ECB that he as president of the revered Bundesbank has been so openly critical? He demurs. Germans would not have trusted their central bank, had it not been consistent with its traditional view, he argues. That has meant it must criticize the ECB, as well as support it. (Insiders say he has done far more of the former than the latter, voting against almost all monetary policy support for the eurozone over the past six years.)
Later Weidmann adds: “Trust comes through understanding. But it also comes with personality.” Some think the German wariness of the ECB would change if a German were to succeed Draghi after he leaves at the end of next year. But it would be an extraordinary change — for Weidmann and the bank. He has been the most vocal of the handful of the council’s 25 members to have opposed the bank’s bond-buying. Even policymakers who are sympathetic to his position believe it was an error to rail so publicly against Draghi’s battle to keep the currency area together. After several years of covering the ECB, I suspect his argument that nationality no longer matters undervalues the complex politics that encase the job — at least if he really means what he says.
He argues that if monetary union is going to work, then the question of nationality must be put to one side. Talking about which country people are from all the time “illustrates a certain nervousness” that Weidmann thinks in time would weaken people’s trust in the euro.
We are by now an hour into lunch. As I tackle my schnitzel, Weidmann is losing his cool. This discussion about a candidate’s nationality is “completely absurd,” he says. “I mean, would you have asked if this institution is right for an Italian?”
Well, seven years ago many did ask that very question. In 2011 the ECB presidency seemed, for the first time in the body’s history, to be heading to Germany. But the prize slipped from Berlin’s grasp after the abrupt withdrawal from the race of the presumed front-runner, Axel Weber, Weidmann’s predecessor as Bundesbank head. Instead it went to Draghi: a man from a country synonymous with rampant inflation. Ultimately, Rome’s candidate has had to fight rather different beasts — market panic over the eurozone debt crisis that reached its peak in 2012, and, in its aftermath, rising unemployment and the risk of deflation.
The global financial crisis almost destroyed the eurozone. Ask people in Paris or Rome what they think would have happened had Weber been in charge and few think it would have ended well. The assumption is that Weber, an adherent of the Bundesbank doctrine that says inflation must be kept low at almost any cost, would have been too rigid to take the radical measures needed to shore up the eurozone. Most now credit the ECB with saving the euro after Draghi issued a direct challenge to doubters, threatening to buy potentially unlimited amounts of government bonds to counter speculation that the region was about to collapse. But this appalled orthodox German economists. In 2012 Weidmann invoked Goethe’s Faust to warn of the potential perils of state financing by a central bank. In early scenes from the tragedy, Mephistopheles persuades a heavily indebted Holy Roman Emperor to print paper money to solve an economic crisis; after more and more money is printed, spiraling inflation ensues.
For now Weidmann contents himself with offering lukewarm praise for Draghi, while echoing a view I have heard on countless occasions in Germany that the ECB has done too much to bail out weaker members of the eurozone. “The ECB [is] certainly an institution that functions well,” he says. “But this cannot be an argument for us to take over the role … of governments.”
Ironically, Weidmann may be a beneficiary of the fact that nationality does still matter. It is because he is German that he is considered the front-runner for the ECB presidency. While others, including Banque de France governor François Villeroy de Galhau and Dutch central bank president Klaas Knot have been mentioned in connection with the role, none are linked so frequently as the Bundesbank chief. After a Dutch, French and Italian in the job, many see it as Germany’s time to head the ECB. The nomination of Spain’s economy minister Luis de Guindos for the post of ECB vice president has also seemingly raised Weidmann’s chances: appointing a deputy from a southern state is seen as paving the way for a candidate from northern Europe to take the main prize.
The big question is whether Berlin would pay the price others would demand of it — widely assumed to be more monetary union. Would Weidmann view a deal on a common EU budget, which the French president, Emmanuel Macron, is pushing for, as a fair trade for a German ECB president?
It is, he says, another “absurd” debate. He cites the governorship of Jean-Claude Trichet, who headed the ECB from 2003 to 2011. “I mean, we had a French president of the ECB, and what did the Germans demand from the French to compensate for a French president? Did we introduce some other rule-based mechanism in contrast to that? Or did we ask for transfers for Germany to compensate for that?”
The consensus is that the Germans secured in return agreement that the ECB would be based in Frankfurt and in the design of the Bundesbank. Weidmann disagrees that this was a French concession. “It was the consensus at the time that an independent, stability-oriented central bank is the best way forward — everybody agreed.”
So how will his intractability be received in Brussels? Weidmann plays down his dissent. “[In] some of the debates we might differ, [but] it’s never really the case that we have one outsider and the rest.” The record shows otherwise. In September 2012, Draghi confirmed that only one rate-setter went against his promise to do “whatever it takes” to save the currency union. People who were in the room say this was Weidmann.
In recent months Weidmann has strikingly moderated some of his positions. Indeed, the ease with which he managed the transition from Frankfurt to Berlin and back again led to comparisons with Thomas Becket, who was made archbishop of Canterbury by King Henry II to curb the power of the church — and instead became its greatest defender. Weidmann demurs: “I never changed my fundamental beliefs or my views on certain things.”
The desserts come — we both have the sherbet. The conversation turns to art in the Weimar era, the root of the national fear of hyperinflation. Weidmann knows his stuff, talking about Conrad Felixmüller’s paintings of coal miners in the Ruhr. We order espressos. Central bankers, he tells me, are “very considerate, moderate personalities.” I am not sure his ECB colleagues would agree. He might see a plurality of views as a sign of Europe’s strength; investors would see it as anything but. Then he and his bodyguard drive off in a BMW, purring toward the Bundesbank, in the opposite direction to the ECB — for now.
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