ECB Insight: Nagel Wastes No Time Making Clear Bundesbank Tradition to Continue

11 January 2022

By David Barwick – FRANKFURT (Econostream) – Lest anyone had doubted, newly minted European Central Bank Governing Council member Joachim Nagel made clear at his very first opportunity that the German Bundesbank would continue its tradition of standing up for stable prices and against policy activism.

In a speech at a ceremony on Tuesday to mark the change in leadership at the Bundesbank, which Nagel now heads following the departure of Jens Weidmann, Nagel expressed himself in terms Weidmann would have been every bit as comfortable with.

In the presence of ECB President Christine Lagarde, Nagel made no bones about his plan for continuity to prevail at the German central bank, asserting that he would ‘follow the Bundesbank's previous line’. This, he specified, included promptly pointing out inflation risks; insisting that emergency measures remain bound to the pandemic; warning against excessive monetary accommodation; and keeping ‘options for action’ open.

He wasted no time in living up to his words, identifying ‘more of a risk that the inflation rate could remain elevated for longer than currently expected’ and calling for monetary policy to ‘be on its guard.’

At most, one might be surprised by the speed with which Nagel waded into the fray. However, Nagel is no newcomer to the world of central banking and inasmuch already at ease articulating himself on relevant issues. In particular, he is thoroughly at home at the Bundesbank, at which he has spent many years, and today's speech will have gone over well within its walls.

Moreover, as we noted last month, ‘the head of the Bundesbank does not have the luxury of some central bank governors of keeping quiet for years on end’. Germany is not only the largest economy of the euro area, but is also home to a general public with a relatively high interest in its central bank, not to mention a major financial community. At a time of record-high inflation, Nagel has effectively assured German consumers, sceptical of the ECB anyway, that he is watching out for their interests.

And not least of all, Nagel knows that the German government specifically wants continuity at its central bank, a theme Finance Minister Christian Linder, who in his speech at the ceremony called the Bundesbank’s role as warner ‘sometimes uncomfortable … but indispensable’, touched on again.

Via tweet last month, Lindner announced 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.’

If Nagel appeared to be giving the ECB notice that Germany would continue to protest against the excesses of a Governing Council dominated by policy doves, Weidmann, ever the diplomat, took the possible edge off the former’s speech with some warm words directed at Lagarde in which he thought to include former ECB President Mario Draghi, with whom he had a notoriously difficult relationship.

‘Dear Christine, I would like to thank your predecessor and especially you for the fact that these discussions took place in a solution-oriented, open and constructive atmosphere’, Weidmann said.

Under Nagel, the tone of the discussions will presumably remain relatively relaxed, though the looming need to change monetary policy course could put that to the test yet. In substance, we see Nagel’s first speech as Bundesbank head as confirming our expectation that he will be very hawkish in the context of the Governing Council and its other 24 members, but not necessarily any more so than Weidmann.