Germany’s prototype banker

The Bundesbank has been struggling to find a role in European policymaking ever since it ceded its authority over German monetary policy to the European Central Bank five years ago.

Now the appointment of a respected economist as the German central bank’s president offers the lately scandal-tinged institution a chance to regain its influence.

Axel Weber was an unorthodox choice to replace Ernst Welteke, who resigned following disclosures that he had accepted corporate hospitality from Dresdner Bank. Traditionally, German governments have picked presidents with central bank experience and sympathetic politics. Welteke, for instance, was finance minister of Hesse and then head of the Bundesbank’s regional bank in that state before fellow Social Democrat Gerhard Schröder appointed him to head the central bank in 1999. Weber, in contrast, doesn’t have a strong political affiliation and has never worked at the Bundesbank.

His wasn’t the first name on Schröder’s list. Opposition parties jumped on leaks that the chancellor was considering two officials in his government, Caio Koch-Weser and Alfred Tacke, contending that either would open the central bank to political pressure. Schröder could not countenance the most qualified internal candidate, Bundesbank vice president Jürgen Stark, because of his links to the Christian Democrats and his frequent criticism of Schröder’s government.

As a nonpolitical outsider and monetary policy expert, Weber, 47, has the credentials to reassert the Bundesbank’s independence. A professor of international economics at the University of Cologne, he is one of the so-called “wise men,” a group of five independent advisers to the government who are known for being nonpartisan. He also is well known to central bankers for heading the Center for Financial Studies, a Frankfurt think tank.

“We’re quite glad an experienced economist is now president of the Bundesbank,” says Steffen Kampeter, a Christian Democrat member of Parliament. “We take it as a success.”

Weber’s independence will be tested. Only three days after announcing the appointment, German Finance Minister Hans Eichel blasted the ECB for refusing to cut interest rates, complaining that it focused too much on average inflation in the euro area and ignored Germany’s low 1.6 percent rate.

Economists who know Weber well say that he is unlikely to wilt under the pressure and that his views largely reflect mainstream ECB analysis. At his first news conference, he announced that he saw no need to cut interest rates. He believes that Europe’s economic problems are structural -- big budget deficits, high tax rates and rigid labor markets -- rather than the result of tightfisted monetary policy. The wise men’s latest annual report criticized the German government for violating the European Stability and Growth Pact with its high deficits.

“I don’t think Axel’s a fine-tuner,” says a senior central bank official who has worked closely with him. “He’s for fiscal responsibility and not too much for activism on the monetary side.”

Weber, however, is not an advocate of traditional German money-supply targeting. He welcomed the ECB’s decision last year to deemphasize monetary goals. If, as some European officials suggest, Berlin pushes to have Weber succeed Otmar Issing as the ECB’s chief economist in two years, he may ditch money targets altogether in favor of inflation targeting. That could incline the ECB toward an easier rate stance when inflation and growth are low, as they are now.

In any case, as a professional economist, Weber “will be in a better position to argue his views” at meetings of the ECB governing council than Welteke was, says Norbert Walter, chief economist at Deutsche Bank. In today’s European monetary policy-setting, the Bundesbank president holds just one of 18 seats at the ECB table. Instead of imposing German policy on its neighbors, as the Bundesbank did in the past, the current president must use well-researched economic logic to persuade them. An economist like Weber is the kind of leader more national central banks in Europe should seek out, says Walter.

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