Guest Post: Former Central Bankers Step Up Against The Central Banks

Tyler Durden's picture

Submitted by George Dorgan of SNBCHF blog,

There are already three former European central bankers who criticize more or less openly the European Central Bank (ECB).


Axel Weber, former president of the Bundesbank

Axel Weber quit the Bundesbank in February 2011 when he realized that his tough monetary stance would not allow him to become president of the ECB. Later he took a new job at UBS, where he is supposed not to utter too much critics against the establishment.

Juergen Stark, former chief economist of the ECB

Juergen Stark left the ECB in September 2011 in protest against the ECB monetizing of debt.  The current role of Juergen Stark is different. He decided to make his opposition against the ECB public. Juergen Stark spoke with the Manager Magazin last month.

“I see the need for consolidation in the euro area. Weaker states would have to leave the monetary union. What matters is that the Franco-German axis hold. The integration of the core must not be lost. Otherwise we get a political and economic disaster of historic proportions.”

In March he criticized the ECB and accused her of provoking inflation.

 ”Both the policy and the central banks have succumbed to the temptation to treat all problems of the world flooding the markets with liquidity. It is historically proven that “any particularly strong expansion of the central bank balance sheet leads to inflation in the medium term”.

At the end of July he called Draghi’s plan to save the euro at any cost  ”a violation of European law”. He said furthermore:

 ”It is not the task of a central bank – at least not a modern central bank, as we understand it in Europe – to finance governmental functions or to give money directly to states.”


Otmar Issing, former chief economist of the ECB

Another European central banker has voiced his opposition even more strongly. Otmar Issing worked for eight years in the Bundesbank and changed 1998 into the board of the ECB and remained there till 2006. He is called one of the “fathers of the euro”. In 1998 he called the the euro “a very courageous experiment.”  Now he realizes that this experiment might fail soon.  He will publish soon a book with title “How to save the euro and enforce Europe”.

Some of his opinions are:

“More and more bailouts, and everybody says, the dose should be increased further. This is wrong. The political union of Europe as a solution to the problem? Do you really think anyone wants more integration of Germany into Europe, if it means that Germans must pay even more to other countries?”

He claims that Spain and Italy had many years of cheap money before the financial crisis, but did not use this period effectively.

“Spain and Italy need to solve their problems themselves, as they caused them. During the years of monetary union Italy had  always slow growth – an expression of bad policies. The global financial crisis has only accentuated the issues. Italy has so far done nothing to reform the labor market. The only exception are the Portuguese, they reform their country, they stick to agreements. What should the Portuguese think if other states constantly obtain exemptions from ?

“The euro will survive, but not with all members”, he adds.

More details on Otmar Issing’s new book can be found here.


Kurt Schiltknecht, former chief economist of the SNB


The next former central banker who is criticizing the central banks, is the chief economist of the Swiss Nationalbank (SNB) in the 1970s. In 1978 the SNB stipulated a cap for the franc, at that time against the German mark and was successful.  Schiltknecht was member of the socialist party (SP), what made his election into the rather conservative Swiss National Bank more difficult. Interestingly he is now the main advisor for monetary policy to the right-win politician Christoph Blocher of the Swiss People’s Party (SVP). Both Schiltknecht and Blocher were opposed to the early SNB interventions in 2010, but were in favor of a EUR/CHF floor in Summer 2011, more details on Blocher’s homepage.

Here a selection of Schiltknecht’s critical voices against today’s SNB leaders:

[Capital controls in the 1970s:] we tried, with negative interest rates, with investment bans and such things, to influence the movement of capital. But these measures have never worked at all. (Source, more details here)

Pegging the Swiss franc against the euro is far more dangerous than pegging it against the stable German mark, as the SNB did in the 1970s.  (Source)

In June 2010, when the SNB intervened at EUR/CHF 1.40, he said:

 ”It has been well established that these interventions have ultimately brought nothing huge. The market has not received a clear signal, the SNB has intervened too soon and has pumped too much money in the market. They have probably noticed that we are moving towards inflation.”  (Source)

In August 2011, when the franc was trading near parity to the euro, he opted for the first time for interventions:

In difficult times, you have to give the market a clear signal, where the exchange rate should be. The SNB should not target a single exchange rate, but a basket of currencies. (Source)

The SNB did not listen to his statement, when she set the floor. If she had used a basket as reference, then the strong fall of the franc against the dollar since September 2011 would be less accentuated. The USD/CHF exchange rate would be lower, the franc less cheap for Americans and other parts of the world.

Schiltknecht confirmed his August 2011 proposal of a currency basket in April 2012:

Faced with declining confidence in the economic policy of the euro countries it could be advantageous to define an exchange rate target for a currency basket. In this basket could be included also countries, whose economic policies are more stable than the ones in Europe and in the USA. This could help to minimize the risk that an unpredictable and uncontrolled development in the euro area would have a devastating impact on Swiss monetary policy. Pegging the franc to a currency basket would be more useful than removing the peg completely.  In current uncertain times the SNB must  do everything so that the Swiss franc is not dragged down into the vortex of weak currencies.


Georg Rich, former chief economist of the SNB

Schiltknecht was not the only central banker to disapprove the SNB interventions in June 2010. Georg Rich was until the end of 2001 Chief Economist of the SNB. In 2010 he asserted:

“Until spring [2010] I totally agreed with the National Bank policy. In May, however, it was scary to me, as the SNB bought up such an extensive euro sums. ” (source)


The SNB intervened in May 2010 for 77 billion francs, but in 2012 she had to increase currency reserves by 59 in both May and June and by 41 billion francs in July.


Ernst Baltensberger,  Thomas Jordan’s academic supervisor

Also in summer 2010 Professor Ernst Baltensberger, Thomas Jordan’s academic supervisor said:

“To fight against the market has no prospect of success. Using quantitative easing in a recession makes sense, it is a method used even in prior crisis. But now we do not see a crisis, the SNB should reduce liquidity…  (source)



All these older central bankers experienced the inflationary periods in the 1970s in detail, whereas the younger ones seem not to grasp what inflation means. Modern central bankers seem to think that monetary inflation will not lead to price inflation in the long-term. This might be true in countries where asset prices need to de-leverage after the bust of real-estate bubbles.

But it is certainly not true in states like Germany, Finland or Switzerland, that did not have a real-estate bubble till 2008. With current low employment and the aging population, qualified personnel who speaks the local language  will get rare. PIMCO’s Bill Gross might be right saying that soon employees want to get a part of the cake and not only the stock holders. This essentially implies wage inflation, the enemy of the 1970s.

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Cplus's picture

The language in Greece has functioned as a protective reef permitting the continued development of its own pop music outside the reach of the usual rock music with lyrics in English.
Something interesting can be learned from the pop hits of this summer, providing a perspective not available in the financial and media headlines .
The top performer is  Midenistes, meaning nihilist in Greek, rapping with a variety of attractive  artistes.
Some of the top songs of the summer are I live in the moment, and The party doesn't stop.
(Until it does.)

QuietCorday's picture


Worth remembering the hit Kalimera Ellada, by Goin' Thru back in the mid-noughties, which exposed how much the Greeks knew they were being screwed by their political class.

n8dawg84's picture

Just to echo your comment, I hear an ever increasing number of songs on pop radio with similar messages here in the US. Live in the moment, keep dancing, and keep partying. They must think its Happy Hour, but actually its after hours and the club is about to close....

Temporalist's picture

It's worse than that and to continue your metaphor:

Happy hour ended hours ago, the floor is full of puke, there are dozens of coked up steroid heads standing around looking to get into a fight, everyone has spent all their pocket cash for the evening, people are scrambling to find their friends to make sure they get home alive, there is a stampede for the exits as someone screams "Fire!" but the bouncers are still able to coral people to prevent them from trampling one another by promising there is no fire but everyone knows the truth and they are waiting for the lights to come on before they have to actually face the stranger they have been sucking face with for the past few hours knowing full well that neither of them can speak coherently and can't see or walk straight but would rather go home miserable with an undesireable stranger than go home alone to face reality when the daylight is sure to come.

Hober Mallow's picture

Complainers missing power and envious of the guys that replaced them.

Bunch of crooks anyway.

Mongo's picture

Corruption is a bitch if you aint part of it... no?

Haager's picture

If I sum it up correctly all critics are either german or swiss bankers with interests into a solid and strong currency whilst the actual path of the ECB is going to support a (further) weakening of the euro to "save the EU" - obviously including a going all in with the ESM?

Ghordius's picture

+1 add Juergen Stark's comment "The integration of the core must not be lost." and that's more or less the position, yes.

Catullus's picture

In difficult times, you have to give the market a clear signal, where the exchange rate should be. The SNB should not target a single exchange rate, but a basket of currencies.


It sounds like the CBs of the 1970s have learned nothing. 

Ghordius's picture

trade patterns, Catullus. Switzerland's business is 75% with the eurozone, so the current 77% of FX reserves in EUR are not that oulandish as they might appear.

the european central banks have learned something in the 70's, and the teacher was Nixon.

see this ZH Article

Hence the EUR.

Centurion9.41's picture

Europe has always been about this. -> "What matters is that the Franco-German axis hold."

Of course, the left and right sides of the EU brain got flipped in the womb. 

She's been acting accordingly ever since.

Zero Govt's picture

hard to see any axis hold with a lefty-loon (Marxist?) like Hollande (be-)heading France with a Govt spending spree, lowering retirement age and taxing the rich (ok middle classes) to death. Socialism is nothing but devisive 

ammo42's picture

You're talking about the 75% top tax rate ? I've yet to see this. Most of the electoral promises of Hollande was just cheap talk. At least we'll avoid being further ass-raped by Sarkozy's cronies.

Ghordius's picture

the US had once a 91% top tax rate. just saying. some think it was the golden age

gwar5's picture

Fitzwilson, over at KWN, likened the global financial system over the last 30 years as a bunch of shoppers (houses, currencies, equities, bonds), all filling up their carts buying shit, but are now going to try and hit the check-out line at the same time. There is going to be a massive pile up trying to get into hard assets and proper currencies.



One World Mafia's picture

If the basket of currencies is controlled by an entity it is no good.  An IMF controlled basket is no good.

lotsoffun's picture

very nice article.  except for one thing, (and as is usually lots of fun being wrong) - are there any non-germanics being quoted here?


LMAOLORI's picture



Does it matter what they say?

More QE coming, Bank of England minutes show

and here it will be just in time to save obama

Muted inflation supports more Fed easing

dorgang's picture

This is a very good point: Non-Germanic (former) central bankers who critize central banks. I will add some, like Volcker or Fisher, in the original article here

But by general tendancy central bankers in the US, UK, France or Italy are rather Keynesians, whereas Germanic ones have strong monetarist and supply-sider traditions. 

More details and why Germanics are rather monetarists and supply-siders here:

George Dorgan,

Bill Shockley's picture

In a fiat money world  where every political entity is spending more than it is collecting in taxes it is absolutely necessary for each country to either print money, borrow it, raise taxes or declare bankrupcy either in part or wholly unless internal budget adjustments are made. 


The world economy can do what ever the fuck it wants, really it just isn't important...we have a political problem these days because it is the political entities that can create more fiat coupons to buy shit and pay shit they can't afford if we let them. That includes paying us and letting the rich skate.


All the Westren countries are essentially Fascist, ie corporate and plutocractic, the banks and the military police state keep things in order.


You will get what they give you, nothing more without armed rebellion.


For what it's worth, Marx was right, so basically was Lenin and Mao. These days it's just a different king in a different castle. In Russia the party replaced the king. New boss same as the old boss


Think for yourself. Get your hands on your money and diversify what piss poor assets you have. Be ready and willing to help when the shit hits the fan.


What else?





















AnAnonymous's picture

Price inflation? 'Americans' aim for depletion of resources. This one will induce price inflation, no matter what.

From that point, putting forward central banks' action should be analyzed with the much severe cause of price that is depletion of resources as wished by 'Americans'.

ECB tries to do what it is best to get the best before depletion of resources is an untractable situation.

In other words, consume before it is too late and by all means.

onebir's picture

They're older but perhaps equally importantly they're Germanic...

BotMightFly's picture

Some interesting comments about the razing of countries, their soverignty, and the US is next...

See::  -- there is a short video clip highlighting financial policy at work.