The President of the Bundesbank Lashes Out

Wolf Richter's picture

Wolf Richter

Jens Weidmann, President of the German Bundesbank and member of the ECB Council, ventured into a veritable lion’s den with an interview in Le Monde, the number one liberal daily in France whose editorial bend has been supporting President François Hollande and his “growth” policies. And there, the central banker lashed out at Hollande and what he'd promised during the campaign. And he lashed out at the ECB, and at everything that smelled of a transfer union, and in passing at Paul Krugman and others who wanted the ECB to print with utter abandon to monetize the sovereign debt of debt-sinner countries, even more so than it has already done.

Le Monde called him “guardian of monetary orthodoxy,” whatever it meant by that because a central banker who insists on maintaining price stability rather than printing trillions to prop up the markets and enrich the bankers is closer in today’s crazy times to a monetary novelty than monetary orthodoxy.

“Being in favor of growth is like being in favor of peace in the world,” Weidmann said about the raging debate of growth vs. austerity. “The real debate is which path leads to sustainable growth,” he said. And the answer was clear: “structural reforms.” Debt-fueled spending would just create an “economic straw fire.” And then he added, “In fact, I’m asking myself what these discussions are hiding.”

Then he shot down European Project Bonds that Hollande has been pushing with all his might to fund infrastructure projects as part of his “growth” policies. “This debate irritates me a bit,” Weidmann said. “Every month, ingenious ideas to counteract the crisis surge out of nowhere before they disappear a month later. Now it’s project bonds.... It’s not a lack of infrastructure that is slowing down growth in these countries.”

While he was at it, he whacked at Hollande’s most cherished panacea for the debt crisis: “The belief that Eurobonds could solve the current crisis is an illusion,” he said, reflecting the opinion of his compatriots, an astounding 79% of whom were dead set against them, grasping how insidious these bonds would be for German taxpayers. Read.... Germany Walks Away From Greece.

Eurobonds, which would spread liability for one country’s sovereign debt across all Eurozone countries, could only happen, if at all, “after a long process that would among other things have to include changing the constitution of several countries, modifying treaties, and having more of a budgetary union,” he said. “You don’t entrust someone with your credit card if you cannot control how much he spends.”

Communalizing national debts across the Eurozone would require “federalism,” he said. “But even in countries where governments clamor for Eurobonds, such as France, I see neither public debate on, nor popular support for the transfer of sovereignty that must accompany them.”

Federalism. A toxic word in Europe where each country proudly insists on its sovereignty. People are already complaining about the incessant intrusions of the EU in their daily lives. So, Le Monde asked, was there a way out of the euro crisis without “jumping into federalism?”

Well, “I’m convinced that clarity on this subject would help us,” he said. “Investors not only worry about the situation in one or the other country, but also about the functioning of the Eurozone as a whole.”

What about regaining the confidence not just of investors, Le Monde asked, but also of populations?

“You have to find the equilibrium between economic necessities and political limits,” he said. “Reforms in countries that receive aid are necessary: they may be hard, but they permit the country to pick itself up and not depend indefinitely on others." And he warned of “a transfer union” where the debts of one country would forever be paid by others. “Our role as central banks is to guarantee price stability in the Eurozone. I’m convinced that the future of the euro is fundamentally linked to the support of the population, and that this support depends on the confidence Europeans have in the stability of their money.”

He refused to say if he was bracing himself for Greece’s exit from the Eurozone, but he left little doubt: “We will see if the agreements underlying the solidarity of other countries are respected. And if necessary, the aid should be stopped.” Then he hammered home his point: “The decision is now up to the Greeks.”

Hollande would like for the ECB to support growth more vigorously, Le Monde said—conveniently forgetting that, after a series of devaluations since 1945, the French franc was "revalued" in 1960 at 100 old francs to 1 new franc. Confidence-inspiring notes were printed, and the dance started all over again: from 1960 through 1999, when the franc was replaced by the euro, it lost another 88% of its value—due to France's habit of monetizing its debt. A fate Germany has tried to avoid. And so, Le Monde asked Weidmann if he could “envision an evolution of the ECB’s mandate.”

Um, no. “The mandate is deeply rooted and stems from the lessons learned during the seventies and eighties," he said. "It’s when a central bank ensures price stability that it contributes the most to durable growth.”

He lamented that the balance sheet of the ECB has more than doubled since the financial crisis and was larded with risks “to avoid a collapse of the system.” But these were “risks for taxpayers, particularly in France and Germany.” He worried about overstepping “the red line between monetary policy and budgetary policy” and said, “Governments must take on their responsibilities and not subcontract them out to monetary policy.”

Aiming squarely at Paul Krugman, he said, “In the US, certain people believe that the ECB should buy more sovereign debt like the American Federal Reserve. But we’re not a federal state, and the Fed doesn’t buy the debt of California or Florida.” And he vetoed in advance any new Long Term Refinancing Operations (LTRO) through which the ECB late last year and earlier this year had lent banks €1 trillion for three years at 1%. “Like morphine, they relieve the pain but don’t cure the disease," he said. "And there are side effects, such as delaying the reform of the banking sector.”

He wasn't the only one who was worried. “My investing model is ABCD: Anything Bernanke Cannot Destroy: flashlight batteries, canned beans, bottled water, gold, a cabin in the mountains,” said David Stockman in a pungent interview. The director of the Office of Management and Budget under President Reagan saw a "paralyzed" Fed is in its "final days," hostage of Wall Street "robots" that trade in markets that are "artificially medicated." Read the whole interview..... The Emperor is Naked: David Stockman.

And here is a dark, thought-provoking, and awesome video by the author of Currency Wars, James Rickards—particularly powerful in light of the euro crisis: Currency Wars – The Making of the next Global Crisis (video).

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rsnoble's picture

I love all this growth policy talk.  The only thing growing is the disaster that's been created. 

RECISION's picture

 "It’s when a central bank ensures price stability that it contributes the most to durable growth.”

Durable... hmmm...

As opposed to exuberant, desirable, targeted or fantasy, I take it... 

Stimulati's picture

I read a lot of Paul Krugman and I don't think "Paul Krugman and others who wanted the ECB to print with utter abandon to monetize the sovereign debt of debt-sinner countries, even more so than it has already done." is a fair characterization of Krugman's views on the matter.  Maybe I missed something he wrote.  I do know that Krugman believes more austerity is doomed to failure.  But isn't that obvious by now?

Ayn Rand's picture

And just how would you characterize Krugman?   I think you DID miss something.

f16hoser's picture

Weidmann is just pissed because INTERPOL is crawling up his ass with a microscope. Bundesbank will go the way of Lehman soon enough..... TEE HEE HEE....

Wood's picture

Do you see now, Tyler? If ECB prints Germany leaves, Greece can default without exiting the Euro. These people do not want to see a precedent for secession established. The math says we will see a default, but no one is really explaining why a default must result in a Greece exit.

The Greece exit is something conjured up by the commercial banks to "force" the ECB to step up in the case of a default.

Last, if Germany leaves the Euro the world will welcome a new gold-backed Mark with many celebratory cigars!!!

Fallschirmjaeger's picture

Let me say that I love this man. <3

disabledvet's picture

The purpose for the study of economics is because Empire always comes first...and inevitably "the Empire becomes a spent force." hence movements for "sustainability." Europe is being forced to economize. I happen to believe it is now not possible to be broken up. That doesn't mean the Euro doesn't get annihilated however. I think the Japanese who have posited that the USA is far more of a Roman-like entity (with Europe being the historical equivalent of Greece) may in fact have more truth than I believed. These "endless wars" not only continue (in spite of the USA's bankruptcy) but appear to be "just getting started." this view is surprising to me as it exists nowhere in the American historical record until the past decade. That makes "economists who can sustain an Imperium" very valuable indeed. I've been re-reading my Napoleanic Campaign Histories (of which the logistical side is truly amazing) and pondering British Imperial finance (hint, hint: if it wasn't nailed down it was being used for the war effort.) I happen to believe our current Government En Toto is planning to execute on a massive incursion into Syria.

q99x2's picture

'Federalism. A toxic word in Europe where each country proudly insists on its sovereignty.'

It hasn't worked so well in the US. That would be like telling Europeans that if you give the banks all of your money and ability to make money we will give you the TSA, DHS, Alciada, GMO, drones, and make debtor slaves out of your children for years to come.

Sounds like they are asking for trouble and going to get it in either case.

ebworthen's picture

Central bank debt schemes collapse as Nationalism ramp continues.


Jack Sheet's picture

Thank God, a weekend has passed without Rubber Scrota

css1971's picture

The real debate is which path leads to sustainable growth

Doesn't exist.

AnAnonymous's picture

Depends on what scale of time.

If based on human history (so roughly 5000 years), there were paths to sustainable growth for times this scale.

With US citizens and their US citizenism aiming at depletion of resources, well, the spectrum of options is being narrowed fast.

Less and less resources, less and less opportunities of anyother social organization that the ones beget by US citizenism.

US citizenism will prevail cause of shortage of means to support any alternative.

Ying-Yang's picture

Ahhhh AA or Tyler...... I know you are fucking with us right?

g speed's picture

Its almost impossible to grasp how one poster of comments (in this case yourself) can be so wrong in so many ways. You've become a cornucopia of inconsequential fallacies. 

Go Tribe's picture

If not federalism, why have an EU? As it is, it's little more than a petty regulatory body.

ljag's picture

Since the end game is already in play, there is no solution to our predicament. Had we had the foresight and the means to leave the country with some gold in our pocket, we might have had a chance. Alas, it is too late for that now. All we can hope for is stiff resistance and yankee ingenuity. 

nowhereman's picture

Ah, sustainable growth - that epic myth - that belies the reality of finite resourses.

Someday this fairy tale will end.

nearvana's picture

depends on the resources! did you know that the energy of the sunshine reaching the surface of the earth per day is more than enough to satisfy our energy needs for an year ... so yes, there is still some space for sustainable growth. however we need the means to extract this energy and obviously printing the money to pay for it is not enough

g speed's picture

wrongo--nowhereman-- compounding of efficiency charts exponential growth in the face of finite resourses-- which belies the validity of your premise 

PeterLemonJello's picture

And I say that the compounding of efficiency is no more than theoretical garbage predicated on the fact that humans are "the smartest species to ever walk the planet".  Pure and utter bullshit.

Ropingdown's picture

People go on about the efficiency and growth which can be obtained.  My question is "by whom? By what percentage of the population?"  It does not matter if segments of the US or French population can increase productivity when an ever-growing fraction of the population is dependent upon government charity such as Supplemental Security, Food Stamps, Medicare they did not really fund, Medicaid they absolutely didn't fund.  The problem is not just how we can grow, but what difference this will make when taxes and redistribution have to grow exponentially to feed the part of the population that doesn't know much of economic value, doesn't have values that lead to productivity, and demands "what is their right."  The problems of moving to efficiency, which you can call austerity, are enormous and will cause political upheaval.  Physicians are doing well...until the taxpayer screams "enough!".   Those on SS and Medicare are doing well, they feel, until their checks and medical coverage are reduced, which they will be.  The second that inflation is made the major path to fooling the unaware and the left-out, to kick the can down the road, civil disorder will follow. I note that police, soldiers, and government employees have inflation clauses, so they will certainly be onboard for leaning on others as the new regime's structure is established.  The old promises cannot be kept and therefore will not be kept. 

WhiteNight123129's picture

It is more complex than that. Our planet is finite that is definietly true, and the exponential function is not applicable to our economic reality. Nontheless there is scientific progress, which represent jumps in history followed by stagnation and regression. Overall the level of technology has increased. Does that equate an exponential growth in technology?, not at all. Does that mean that we are bound at some point?, probably. Does it look like we know all that is to be known about Physics, biology, chemistry etc... at this point? I does not look like it. So overall we are bound to stagnation, with from time to time some jumps, followed by regression, stabilization, new jump etc... Evidently the fact that human beings are made of flesh and bones and are not ideas, means that our existence and expansion will never be limitless.

Treason Season's picture

All very good Herr Richter but It sounds like Weidmann wants his Black Forest cake and eat it too. What, mein freund, is the answer to the question, "Will they or won't they..... priiiiiiiiiit!  And when will we know?

OC Money Man's picture

France controlled Egypt, the home of cotton, at the start of the 17th entury when indstrialization took off.  But the French King got money for selling the monopoly rights to wool clothing in France.  Because cotton was seen as competition to wool ad thus underminning the King's revenue, the manufacturing and the wearing of cotton were banned.  This explains allot about the English industrialized to weave cotton.  

Public policy usually inhibits economic progress because government is a game of allocating spoils.  Do you really believe the Keystone XL pipeline was turned down for environmental reasons, or was the huge burst of new oil supply a viceral threat to Exxon and Shell?     

Bob Sacamano's picture

BHO is worried the "huge burst of new oil supply is a viceral threat" to his government dictated green energy plans that can't survive with cheap fossil fuels.

illyia's picture

Thanks for keeping us well informed.

falak pema's picture

the president of Bundesbank has to come out with a strategy to save all global TBTF, hocked to their jock straps, uber-banks, if austerity makes the dominoes fall in contagion waterfall. Calling MAid of the mIst...calling... Die Jungfrau sich truben...

jeff montanye's picture

but do remember, even if alan blinder didn't say central bankers don't need to be truthful with the public, he did run a survey of central bankers where such a sentiment was ranked dead last.

i also like where the source (bankers) describes gata as a fringe group making hay of the (obviously laughable to them) proposition that central banks/futures exchanges exaggerate gold reserves.

zilverreiger's picture

Bonus: German high council will speak on constitutional validity of the ESM june 19

Netherlands meanwhile weaseled it through parliament, with a Wilders ESM courtcase still pending. 40B!

StychoKiller's picture

"Why Nations Fail: the Origins of Power, Prosperity, and Poverty" by Daron Acemoglu, James Robinson; ISBN 0307719219

Two of the world's best and most erudite economists turn to the hardest issue of all:  why are some nations poor and others rich? Written with a deep knowledge of economics and political history, this is perhaps the most powerful statement made to date that institutions matter.

Zero Govt's picture

the book is bollocks. It forwards the premise "prosperity follows from inclusive political institutions" which is putting the dump cart (politics) ahead of the horse (private sector)

even Adam Smiths "Wealth of Nations" got it wrong assigning wealth to the specialisation/division of labour

No wonder nobody understands the problems when they haven't a clue where wealth comes from and who is destroying it (hint: the political institutions the deluded economists Daron Acemoglu and James Robinson credit with creating it)

have economists or academics ever produced an ounce of knowledge in centuries i wonder

jeff montanye's picture

england prospered while france stagnated because it didn't have private or government toll roads so transportation was easier and cheaper.  that's kind of a political decision.  i realize you are sharper than the rest of the world but perhaps there is a symbiosis between private economic players and governments that you are missing.

BigJim's picture

 england prospered while france stagnated because it didn't have private or government toll roads...

Britain had an extensive system of toll roads ( ) that came to an end because the Brits' railways destroyed their income. ie - england prospered despite having toll roads.

France's big problem were its semi-command economy mercantalism and its extensive monopolies crushing competition ( )

And having a resident lunatic like Napoleon running around slaughtering both your workforce and potential consumers in his attempts to create an empire didn't help much either.

Sandmann's picture

Actually Britain was the largest common trade area in Europe. I think it was not so much Toll ROADS that you mean so much as Regional Tariffs and protectionism. Britain was an area of free movement and markets without restrictive tolls from regional barons

Zero Govt's picture

Thanks for the history lesson BigJim

Napoleon centralised like any good despot but actually had a very tasty (fast) road network built for communications and to move troops but this did not seem to help French commerce much

In contrast England had a thriving merchant class (private enterprise) who built their own trade routes over the seas

all a businessman wants is freedom to do business... this is not helped in any way by a large ignorant expensive bureaucracy demanding taxes on trade and handing out dictates/policies on how to trade (Govt is the most inept, ignorant and unskilled institution in history)

wealth creation (private enterprise) has nothing to do with Govt or any institutions... they just suck and drag on commerce

Ghordius's picture

The Frogs should have "invented" laissez faire when they could. ;-)

Zero Govt's picture

doesn't Hollande want laissez faire spending to generate "growth" ?

growth in socialist Govt he means.. we know how that book finishes (it ain't a happy ending)

Ghordius's picture

;-) let me say that even idiocies like socialist spending are a question of degrees... there are some countries that are not socialist and still overspend some 8-10% of GDP. I don't expect France to change much only because they have Hollande as prez.

Zero Govt's picture

Ghordius  -  the only "degrees" of public spending are that all degrees are negative for the economy

Politicians have no understanding of maxmising the use of capital which is why all Govt projects are 3 to 30 times more expensive than private sector spending, usually mis-directed on the wrong project (ie. pissing money away proping up trains/rail rather than backing the ost efficient transport, cars)

all Govt spending is negative/wasteful for the economy. Period.

Zero Govt's picture

er, cheap transportation doesn't lead to prosperity, toll roads had nothing to do with Englands advancement over France

political decisions do not improve anything, no businessman pays any attention to them or references them before doing business. Govt just sucks, it does not aid commerce in any way shape or form

yes there is a symbiosis between private enterprise and Govt (see Hong Kong and Singapore). The more Govt fucks off the faster society prospers. Period.

It's a very simple straightforward correlation, playing out as we speak across Europe, Japan and America where Govt is killing/sucking their economies to death (did i mention Govt sucks?).. hope that clarifies "Why Nations Fail" is rubbish

John_Coltrane's picture

Spot on.

Why the West has led the world (from the recent PBS documentary) for the last 500 years:

1)Competition (and the profit motive)

2)Respect and persuit of Science (especially separation of church and state)

3)Private property rights

4)Very Limited Government which only acts a a referee to ensure the rule of law.

disabledvet's picture

I probably missed something back in ye olde learning days but didn't Britain have an Empire for a wee bit too? As I recall they were history's first fanatical believers in technology as well. The French were still using triremes as late as the 17th century...

mjk0259's picture

Somalia? Singapore and HK have pretty extensive government interference compared to Somalia. It also helps to be a city state with a huge hinterland of cheap labor and resources to exploit. Kind of like   Manhattan. That would look pretty successful on it's own and plenty of government there. Australia recently rated best place to live in some articles. Would be considered socialist by many on here.


Zero Govt's picture

both Singapore and Hong Kong had 'light-touch' British rule and were freeports originally and thrived contrast to Westminsters 'heavy-touch' at home where the economy is on its 2nd dip toward the sewer

what built Australia (as any nation) was private enterprise.. they started farming the arrid land.. the current socialist Govt of Oz is setting about destroying their mining industry with taxation and green legislation

wealth springs from individuals, not Govt policy. Every Govt enterprise, every public-private partnership is an expensive (bankrupt) joke. This puts to bed the entire premise of this book which is another "highly qualified economists" failure

AUD's picture

Actually, what really built Australia was money, gold that is. Fantastical amounts of gold were mined in Australia, & shipped to London, in the second half of the 19th century.

Farming was secondary, even if it made some people fantastically wealthy.