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Weidmann’s hawkish image hinders bid for ECB’s top job

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In most countries, citizens do not flock to see central bankers — but in Germany, Bundesbank president Jens Weidmann is a big crowd-puller.

At the German central bank’s two-day open-door event in Frankfurt this weekend, people crowded in to see the man who is running to become the first German head of the European Central Bank.

The event, attended by around 20,000 people, included virtual-reality tours of the bank’s gold vaults, information stands about its financial supervision work, interactive quizzes and personalised banknotes for the children who attended.

Mr Weidmann, who ditched his usual tailored suit and tie and rolled up his shirtsleeves, met the public to take questions in an overflowing room, mingled with attendees in the sunshine and posed for selfies.

More than 25 years after Jacques Delors’ quip that “not all Germans believe in God, but they all believe in the Bundesbank”, Germans continue to hold their monetary guardian in high esteem for its inflation-fighting hard-money credentials.

Yet for all Mr Weidmann’s domestic popularity, he is struggling to win over the rest of Europe as the contest to succeed ECB incumbent Mario Draghi heats up. National leaders are set to make their choice in the coming weeks as they wrangle over leading roles including European Commission president. If fellow German Manfred Weber does not win the Commission job, Mr Weidmann’s chances will rise.

Many think it is Germany’s turn to take the top position in European finance. It is the eurozone’s largest economy and most populous nation, yet it has never held the role in more than 20 years of monetary union.

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But economists, investors and legislators in France and southern European capitals view Mr Weidmann’s “nein zu allem” — or “no to everything” — attitude during the region’s sovereign debt crisis as a threat to the stability of the euro.

“To meet the challenges that lie ahead — a weakening eurozone economy and a potential debt crisis in Italy — the ECB will need to implement bolder monetary policy than seen to date,” said Christian Odendahl of the Centre for European Reform think-tank. “The eurozone needs someone bolder than Draghi — not a conservative like Weidmann.”

On home soil, it is this conservatism that has made Mr Weidmann so popular: he resisted actions that are widely credited outside Germany with putting the region’s economy back on track. That won him support from domestic monetary hawks, who have launched a concerted media push to install one of their own in the ECB’s highest office.

“[An] ECB president Weidmann stands for stability,” said Otmar Issing, former ECB chief economist, this week. All talk of Mr Weidmann being a hardliner was a “transparent attempt to create a bogeyman”, he said.

Blocking Mr Weidmann from high office would prove hard to explain to the German public, some fear. The widespread admiration for Mr Weidmann in Germany is already combined with deep distrust of the ECB, despite sky-high approval ratings for the euro.

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Mr Draghi has become the Germans’ favourite whipping boy, blamed for everything from robbing Germans of their savings with low interest rates to boosting the popularity of the nationalist Alternative for Germany party.

Mr Weidmann, who has headed the Bundesbank since 2011, has defended the ECB’s low interest rates. He also claimed it should not matter where the president is from. “Surely it would be bad to give the impression that certain nationalities are fundamentally excluded from the ECB presidency,” he said at the open day this weekend.

Yet some in Europe feel he has played on Germans’ distrust of the ECB to burnish his hawkish image — for example, in his opposition to Mr Draghi’s policies.

After Mr Draghi pledged in 2012 to do “whatever it takes” to stop a messy break-up of the currency union, the ECB said it would counter markets’ bets against the euro by buying member states’ bonds in potentially unlimited quantities, in a programme known as Outright Monetary Transactions. Mr Weidmann was the only member of the central bank’s governing body to oppose the plan.

OMT has since acted like a nuclear deterrent — the ECB has not yet needed to use it because it has largely convinced investors that it is willing to act as a lender of last resort to the region’s governments, if needed.

Some fear that, unless Mr Weidmann changes his mind and backs OMT, investors would take aim at the euro under his presidency.

Isabel Schnabel, a member of Germany’s Council of Economic Experts, said last week: “What will be critical is whether he is going to change his attitude towards OMT.”

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While German politicians and the public are supportive of Mr Weidmann’s candidacy, some senior officials in Berlin question whether it is worth Angela Merkel burning the political capital needed to convince the rest of Europe.

“Right now for German conservatives it’s very convenient to say Europe’s problem is this Italian running the ECB who’s robbing you of your savings,” said one senior official. “Having Weidmann as ECB chief would remove a convenient scapegoat.”

And it is unclear how much scope he would have to pursue his views. In a governing council of 25 members, any desire to raise rates could be ruled out by the dovishness of others — a point raised by one attendee at the open day, according to Frankfurter Allgemeine Zeitung.

“You are considered a hawk in a governing council full of doves,” the audience member told Mr Weidmann. “How delightful would it be for you, as a hawk, to announce the decisions of the doves?”

Via Financial Times

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