ECB Hawk-Dove Ranking: Farewell to Weidmann, Welcome to Nagel
21 December 2021
By David Barwick – FRANKFURT (Econostream) – Following last Thursday’s policy meeting of the European Central Bank, an update to Econostream’s ranking of Governing Council members in terms of hawkishness/dovishness was unavoidable. We have taken the opportunity to make a further adjustment by replacing outgoing Bundesbank President Jens Weidmann with his putative successor, Joachim Nagel.
To be sure, were any major monetary policy decisions in need of making in the next week or so, Weidmann remains Germany’s member of the Governing Council and would participate. Moreover, the federal government having exercised its right of proposal, Nagel’s nomination must still be approved by the President of Germany, who has the final say.
As both a monetary policy meeting between now and New Year’s Eve and an objection from German President Frank-Walter Steinmeier seem unlikely, Nagel has assumed his place on the hawk-dove ranking, which in any case now covers the February, March and April Council meetings, by which time Weidmann will have definitely gone on to other pursuits.
Simply adding Nagel to the ranking is trivial. The key question is where, i.e. how to rank him. There are two possible answers, broadly speaking. One would be not to rank him for now (or to give him a ‘neutral’ ranking in the middle), but rather to wait for him to position himself more clearly. The head of the Bundesbank does not have the luxury of some central bank governors of keeping quiet for years on end, so within a few months at most, Nagel would presumably reveal where he stands.
The other option - preferred by us - is to make an educated guess, which is how we arrived at a ranking of 1.5 on a scale extending from -2 (most dovish) to 2 (most hawkish). A ranking of 1.5 is very hawkish, but not extremely hawkish.
There are plenty of reasons to think Nagel will be nothing less than very hawkish, by which we mean in the context of the Governing Council and its other 24 members, not necessarily with respect to Bundesbank presidents in general or the last two – Weidmann and Axel Weber before him – in particular.
For one thing, Nagel is steeped in the tradition of the Bundesbank, having spent nearly two decades with the institution and ultimately becoming a member of its board. Though one finds few public statements from his time there that could be seen as clues about his monetary policy leanings, this is because pronouncements on such topics are typically left to the president.
Comments of his that one does find are thus of the boilerplate variety, but there is no reason to think that he was not at home making them. Otmar Issing, formerly Bundesbank and then ECB chief economist and a policy hawk, was not merely being nice when he told German business daily Börsen-Zeitung that Nagel’s appointment was a ‘stroke of good fortune’. And former Bundesbank board member Andreas Dombret surely meant it when he told the newspaper that Nagel was ‘certainly in the tradition of a stability-oriented Bundesbank.’
A more important reason to think that Nagel will be at least very hawkish is that he clearly wasn’t selected to help the ECB sell its agenda of massive monetary accommodation to a sceptical German public. Had the government been inclined to make a more dovish choice – which would have been particularly surprising at a moment of such high inflation - there were other possibilities, one of them with the added bonus of being a woman.
But as reported in German media, while Nagel’s name was put forth by the main party in the coalition government, namely the SPD, junior coalition party FDP - to which German Finance Minister Christian Linder belongs and certainly the most conservative party in the current government – had the informal right to approve the nomination.
In a tweet yesterday, Lindner said that he and Chancellor Olaf Scholz were proposing Nagel and that ‘[i]n view of inflation risks, the significance of a stability-oriented monetary policy is growing. He is an experienced person who will ensure the continuity of the Bundesbank.’
Lindner’s messages could hardly be clearer: mounting inflation makes it even more essential that the German central bank maintain its traditional focus on price stability. The choice in favour of Nagel can only be understood to mean that he is expected to continue in his predecessors' footsteps.
In view of all this, we are comfortable assigning Nagel a 1.5 ranking, which in any case is somewhat less hawkish than that of Weidmann at 2. It is understood that this represents an educated guess as to where he will stand, and that we may ultimately need to adjust his ranking in either direction. We suspect an upward revision is somewhat more likely than a downward one.