Germany’s central bank chief fights new steps to contain debt crisis
By Michael Birnbaum,
BERLIN — In a country where belief in a rock-solid currency is a secular religion, the head of Germany’s central bank, Jens Weidmann, is preaching fire and brimstone. As Europe takes radical steps to combat its years-long economic crisis, Weidmann is using his influential pulpit to turn German public opinion against the efforts.
Comparing current plans to save the euro zone to the devil’s work and likening them to an addictive drug, Weidmann has in recent weeks emerged as the leading voice against marshaling the European Central Bank’s almost unlimited resources to ease the crisis in troubled countries such as Spain and Italy.
His strident opposition to measures that he says would undermine the value of the euro may constrain the freedom of the ECB, the one European institution that can quickly mount massive efforts to prevent the breakup of the euro zone. Already, Weidmann’s dissent seems to have prompted the ECB to adopt such stringent conditions on its aid that Spain and Italy are hesitating to ask for it.
And while his one-time boss German Chancellor Angela Merkel has been easing her demands that neighboring countries adopt tough austerity measures in return for help, the Bundesbank chief is making conciliation more difficult for her.
At the same time, his efforts could be limiting Merkel’s leeway because of domestic German politics. Merkel, who is up for reelection next year, already faces a public that is increasingly skeptical of the euro zone.
“Those who are attempting to marginalize the Bundesbank are playing with fire,” said Juergen Stark, former chief economist of the ECB who resigned his post last year to protest what he said was a previous example of the central bank overstepping its mandate. At stake, he said, are “the acceptance of the euro and European integration.”
In Germany, Weidmann’s domestic influence is rising as he strikes out against plans to reduce troubled countries’ borrowing costs by buying up as many bonds as are needed to meet the ECB’s idea of sustainable levels. Many Germans fear that printing the money to buy the bonds will contribute to higher inflation in the long run — a violation of what they see as the ECB’s principal mandate and a bitter tonic for a country that gave up its cherished mark in exchange for assurances that the euro would be just as stable.
The new measures are the closest the euro zone has come to offering a guarantee that governments will not go bankrupt — and Weidmann was the only one of the ECB governing council’s 23 members to vote against the plans.
The buttoned-up Weidmann — a slim, 44-year-old strawberry blond who has spent his career climbing the rungs of Germany’s economic establishment — is an unlikely rabble-rouser. Merkel appointed him in 2011 as the youngest-ever head of the Bundesbank after he had served five years as her top economic adviser. Some expected that he would adopt a conciliatory role toward the government whose policies he had just been shaping.
As Merkel — whom some call the Iron Frau — has eased her insistence that struggling euro-zone governments adopt painful austerity measures, Weidmann has taken center stage as the voice of steely-cold German resistance. With the Bundesbank one of the major symbols of Germany’s post-World War II recovery, he is highly influential in shaping the opinions of ordinary citizens, including many who work for or own the small and medium-sized manufacturing companies that are particularly vulnerable to inflation. Merkel has said she approves of the ECB’s plans. But to many Germans, the Bundesbank’s views carry more weight. Weidmann is the highest-paid public official in Germany — including Merkel.
“Not all Germans believe in God, but they all believe in the Bundesbank,” goes a saying commonly attributed to Jacques Delors, one of the founders of the euro zone.
For now, what the Bundesbank is preaching is harsh.
“We shouldn’t underestimate the danger that central bank financing can become addictive like a drug,” Weidmann recently told Der Spiegel magazine, days before ECB President Mario Draghi announced plans to buy up the bonds of European governments in potentially enormous quantities.
And last month, Weidmann spoke at a celebration honoring the revered German writer Johann Wolfgang von Goethe, and told a story about Mephistopheles, a devil in “Faust,” one of the central works in the German canon. The devil convinces a king to print paper currency in such quantities that inflation eventually destroys the monetary system — thus dating fears of inflation in the German language back to at least the early 19th century. Although Weidmann did not explicitly refer to the ECB’s plans, the comparison was clear.
Last week, he told a Swiss newspaper that he thought that governments would be fine paying interest rates of 7 percent, which many economists have said is dangerously high.
Weidmann “is clearly becoming a more political figure,” said Simon Tilford, chief economist of the Center for European Reform in London. “He is attempting to tap into broader German fears about the way the euro-zone crisis has been handled. He’s on fertile ground there. There’s a lot of angst about it.”
The Bundesbank’s outsize influence in Germany dates back to immediately after World War II, when the country’s economy lay in tatters, as did the morale of its people. Nationalism was what led to the rise of Adolf Hitler, many people felt, and flag-waving was seen as vaguely embarrassing until very recently. But Germany’s currency, the mark, was a safe symbol in which to invest their hopes.
“People have been proud of the D-mark,” said Werner Abelshauser, an economic historian at the University of Bielefeld. “The D-mark allowed Germany to return to number one in the world market at the end of the ’50s.”
And many people miss it. “I’ve never wanted this Europe,” said Marcel Vogel, 38, who owns an interior decorating shop in Berlin. “It cannot work, to unite and balance so many different countries — it only brings trouble. I wish we still had the Deutschmark.”
Germany is Europe’s largest economy, and the Bundesbank alone owns more than a quarter of the ECB, whose shareholders are the central banks of individual countries.
Now, with the Bundesbank campaigning so strenuously against the ECB’s plans, Draghi is being forced to wage a diplomatic offensive in Germany to prevent an insurrection. Newspapers have turned against him — one headline in a regional newspaper last month put it like this: “Without Limit: ECB Helps Debt Sinners.”
Some Merkel allies say that while they approve of Draghi’s actions for now, they are also glad that Weidmann is arguing on behalf of stricter policies.
“Mr. Draghi needs to be very careful with all future decisions and stay away from the borderline” of the ECB’s mandate, said Michael Meister, the deputy parliamentary leader of Merkel’s Christian Democratic Union.
Many in Germany see it as only a matter of time before the ECB is forced back into its box.
“The ECB cannot afford in the long run not to be supported by its main shareholder,” said Joerg Kraemer, chief economist of Germany’s influential Commerzbank, who said he was sympathetic to Weidmann’s position. “It’s critical that the ECB convince the majority of Germans who are skeptical of their policies.”
Petra Krischok contributed to this report.