The 53-year-old president of the German central bank, the Bundesbank, signed off five years ahead of the end of his term, saying in a letter to Bundesbank staff on Wednesday that “more than 10 years is a good measure of time to turn over a new leaf for the Bundesbank, but also for me personally.”
Describing his 11-year term as “eventful,” Weidmann’s letter lists the various crisis he’s had to manage, including the 2008/2009 financial crisis, the eurozone sovereign debt crisis and most recently the global COVID-19 pandemic. In those years the monetary environment “has changed massively,” he wrote, and led to “decisions in politics and monetary policy that will have long-lasting effects.”
In a statement, ECB President Christine Lagarde said she “respects” the decision and “I also immensely regret it.”
Jens Weidman has headed the Bundesbank since May 2011, succeeding Axel Weber who had also resigned early amid an ECB dispute about how Europe’s central bank should deal with a sudden spike in interest rates during the bloc’s sovereign debt crisis in 2010.
Like Weber, Weidmann, at the time, was opposed to quantitative easing (QE), arguing that an ECB bond-buying program wasn’t warranted under efforts to drive down interest rates, especially for the heavily indebted countries in the EU’s southern periphery. Weidman led the central bank’s internal opposition against former ECB chief Mario Draghi, who soon came to call him “Dr. No.”
“He was always against loose monetary policy, and eagerly defended central bank independence with really smart arguments,” Jörg Krämer, chief economist at Commerzbank, told DW.
The ECB hawk, however, has remained largely isolated among the many doves on the central bank’s governing council, who successfully advocated for massive asset purchases as well as historically low interest rates to overcome the crisis in the eurozone.
Jörg Krämer said this presumably has led to his resignation now. “If you are struggling over 10 years, and you’re not getting though with your arguments, that makes you wonder.”
And, indeed, Weidmann signed off with a final statement of discomfort about the ECB’s current policy. “A stability-oriented monetary policy will only be possible in the long run if the framework of the monetary union ensures the unity of action and liability, monetary policy respects its narrow mandate and does not get caught in the wake of fiscal policy or the financial markets,” he wrote in the letter to staff.
The ECB is walking a tightrope on balancing the interests of heavily indebted eurozone nations with efforts to fight accelerating inflation
Weidmann’s resignation comes at challenging times for monetary policy in Europe. The Frankfurt, Germany-based ECB is currently deliberating how to tailor its asset-buying program to the needs of an era after the pandemic. A stability-minded banker like Weidmann would have stood the ECB in good stead, said Stefan Kooths, an economist at the Kiel Institute for the World Economy (IfW).
“It’s crucially important that the eurozone finds a viable way out of the zero-interest-rate era, which won’t be easy given the high indebtedness of even large EU economies,” Kooths told DW. He hopes Weidmann’s successor matches him in terms of profile and stamina.
“Should the Bundesbank cease to admonish policymakers about the risks of monetary state financing and overstretching the ECB’s mandate, this will have a negative impact on inflation expectations,” he said, adding that any such development would be dangerous in the current high-inflation environment.
The successor to Weidmann, will be picked by the new German government, likely to be a left-leaning coalition led by current finance minister Olaf Scholz. If a new government can’t agree on a candidate by the end of the year, Bundesbank Vice President Claudia Buch would step in to run the institution in the interim.
Buch is also on a list of likely candidates for the Bundesbank presidency circulating among German media, and including ECB executive board member Isabel Schnabel and Marcel Fratzscher, the head of the German Institute for Economic Research (DIW), among the most hotly tipped.
This article was adapted from German.