ECB Insight: Weidmann Departure Seen by Some as Loss for Governing Council Discussion Quality
6 December 2021
By David Barwick – FRANKFURT (Econostream) – The imminent departure of European Central Bank Governing Council member and arch-hawk Jens Weidmann represents a loss in terms of the quality of Council discussions, some ECB insiders fear, but does not imply a change in outcomes.
Weidmann, who heads the German Bundesbank, will participate in his last monetary policy meeting of the Council on December 15 and 16, when he will probably be one of those pressing the ECB to take decisions that better reflect upside risks to the inflation outlook.
Although on this particular occasion it seems likely that he will not lack allies, whether other Council members back him up has never been a precondition for Weidmann to flout the mainstream and stake out a controversial position.
For example, he was the only member of the Council to take a stand against then-ECB President Mario Draghi’s Outright Monetary Transactions (OMT) programme in 2012 – later testifying against it before Germany’s highest court – and only last July was one of just two members of the Council – along with Belgium National Bank Governor Pierre Wunsch - to oppose the ECB’s new forward guidance.
That his consistently minority views have not tended to prevail is one aspect of his track record, though a fairer assessment would have to consider the question of how much further ECB monetary policy activism might have gone in the absence of his embodiment of German scepticism.
Another aspect is that his repeated dissent prevented him from wielding considerably more influence, as a history of opposition to measures favourable to highly indebted member states of the Eurozone led them in turn to thwart his ambitions to succeed Draghi at a time when Germany could have otherwise relatively easily demanded its turn at the helm of the ECB.
But to measure Weidmann’s contribution to European monetary policy by the standard of policy outcomes would not do him justice, and three ECB insiders of different policy persuasions who spoke to Econostream all lamented the loss of a particularly engaged and reflective central banker.
‘We may not always agree, but it is always better to have an intelligent discussion rather than one in which everybody agrees with everybody’, one person said. ‘He was a very good man on the Council to drive the discussions and enrich the views. For that reason, it is sad.’
Another who distinctly regretted Weidmann’s departure highlighted the need for the Council to encompass a diversity of standpoints. ‘It’s very important that we have people like him who bring other perspectives to ensure that we don’t fall into groupthink and remain open to different views, especially given the current uncertainty’, he said.
No one expected Weidmann’s leaving to result in a material impact on ECB policy. As one person said, ‘He’s still just one out of 20-plus members. It’s not like there are three people and one is departing and that shifts the scales massively. He has charisma and leadership abilities, but it’s still only one vote.’
Another reason expressed by those Econostream spoke to has to do with the fact that while there has been some speculation about the possibility of a more dovish successor at the German central bank, any Bundesbank head automatically represents an institution with a deeply ingrained culture resistant to change.
‘The Bundesbank, like any other bank in the Eurosystem, defends its own view on how monetary policy should be conducted’, one insider said. ‘I don’t think the classical position of the Bundesbank that we all know is going to change dramatically just because a different person comes.’
That view was echoed recently by none other than ECB President Christine Lagarde, who told a German newspaper that she was ‘certain the German Government will choose a candidate that will represent the Bundesbank’s views and the concerns of the German people in a similar fashion.’
Austrian National Bank Governor Robert Holzmann has said he too expected - and indeed hoped - that the new Bundesbank head would share his predecessor’s perspective, though he also predicted that Weidmann was ‘probably not the last’ to experience the ‘frustrations’ of an ECB that did not live up to the founding understanding that it was to ‘satisfy the principles of the Bundesbank.’
At the moment, who that person will be has not been confirmed officially, though reports have indicated that former Bundesbank board member Joachim Nagel, currently with the Bank for International Settlements, is the preferred option of Germany’s incoming coalition government.
Whether Nagel or one of the others whose names have been bandied about in this context, that person will be the emissary of the same venerated institution and rely on analyses prepared by more or less the same staff.
At a moment of record-high inflation in Germany and uncertainty about how far and fast it will subside, the appointment of any successor not expected to share Weidmann’s concerns would be particularly anomalous.
In the end, it is unlikely that anything will change in terms of ECB policy outcomes with a new Bundesbank president. And should the latter indeed turn out to be a seasoned Bundesbanker like Nagel, even the concerns of some insiders – none of whom had a particular potential successor in mind - that Council deliberations could become less rich may well need revision.