Weidmann Exits as Chief ECB Hawk With QE Future Unresolved
(Bloomberg) -- Bundesbank President Jens Weidmann will step down after more than a decade in the post, marking the exit of one of the most hawkish policy makers at the European Central Bank just as it debates the future of its post-crisis stimulus.
The 53-year-old will leave at the end of the year for “personal reasons” and doesn’t have a new job lined up. Replacing him will now become one of the tasks faced by politicians negotiating a new coalition agreement.
The Bundesbank published a letter to staff where Weidmann signed off with a final expression of frustration at ECB policies. In a statement, ECB President Christine Lagarde said she “respects” the decision and “I also immensely regret it.”
The resignation marks a pivotal moment for the Frankfurt-based central bank of the euro zone, which is currently deliberating how to reinvent its bond-purchase programs for the era after the pandemic. Weidmann will still participate in the decision in December where officials are expected to come to a conclusion on what to do next.
It’s not clear whether Weidmann’s departure will have major policy implications for the ECB and economists are divided on the matter.
Joerg Kraemer at Commerzbank reckons his successor will “probably be less hawkish,” while Carsten Brzeski of ING isn’t so sure a new president will make such a difference to the ECB’s overall stance.
“Weidmann’s departure won’t have a dovish impact on policy decisions,” he said. “I’m seeing a subtle change in the ECB’s inflation assessment which is set to tilt the policy stance more toward Weidmann’s liking. It could well be that the ECB will announce a tapering of bond-buying at his last meeting.”
The Bundesbanker’s letter to his staff shared some of the discomfort he has encountered with ECB decision-making during the crisis and in the past decade.
“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 said.
What Bloomberg Economics Says...
“Now is a perfect time for Weidmann to step down. The ECB’s strategy review has come to an end and a new chancellor will soon preside over Germany. The main question the announcement opens up is: With nothing left to lose, how vocal will he be in his opposition to increasing the size of APP when PEPP expires?
--David Powell, senior euro-area economist
Weidmann’s exit coincides with the intensification of political bargaining in Berlin toward a coalition agreement, making it possible that selecting his successor may feature in those talks. If a new government can’t agree on another candidate by the end of the year, Bundesbank Vice President Claudia Buch would step in to run the institution in the interim.
Weidmann, a former economic adviser to Chancellor Angela Merkel, took the helm in 2011 in the fraught aftermath of the resignation of his predecessor, Axel Weber, just as the ECB was beset by arguments over how to deal with a blowout in bond yields during the region’s sovereign-debt crisis.
Channeling Germans’ worries dating from the hyperinflation of the 1920s Weimar Republic, Weidmann became a frequent thorn in the side of former ECB chief Mario Draghi, earning himself the nickname “Dr. No.”
When the Italian unveiled a crisis-fighting tool called OMT that helped stem the debt turmoil in 2012, Weidmann testified against it in court. He then led opposition to quantitative easing, arguing that it wasn’t warranted. In later years, maneuvering to become a possible successor to Draghi, the Bundesbanker softened his tone.
“After taking a very tough stance initially on unconventional ECB policies in reaction to unusual crises, he has come across as a bit less hawkish in recent years, emphasizing that he largely agrees with the main thrust of ECB policies even if he is more concerned about inflation risks,” Berenberg Chief Economist Holger Schmieding said in a report.
Even when sounding more moderate, Weidmann arguably stayed true to his principles in line with the traditional orthodoxy of the Bundesbank that had provided an initial blueprint for the design of the ECB itself. Such sentiments were apparent in Wednesday’s letter.
“It will be crucial not to look one-sidedly at deflationary risks, but not to lose sight of prospective inflationary dangers either,” he said. “And crisis measures with their extraordinary flexibility are only proportionate in the emergency situation for which they were created.”
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