Bundesbank President Jens Weidmann, a relentless critic of the ECB's ultra easy monetary policy, unexpectedly announced that he will step down more than five years early, opening the door for Germany's new government to pick a "less confrontational" successor as Reuters put it. Weidmann said he is quitting for "personal reasons" on Dec. 31, just days after the ECB is scheduled makes a crucial decision on winding down the pandemic-era stimulus that has pushed inflation to its highest rate in over a decade.
Often viewed as the most conservative member of the ECB's Governing Council, Weidmann often found himself butting heads with his fellow euro zone policymakers - especially those from the otherwise insolvent southern European nations - during his decade heading the German central bank.
True to form, in his farewell message to Bundesbank staff on Wednesday, Weidmann said that "it will be crucial not to look one-sidedly at deflationary risks, but not to lose sight of prospective inflationary dangers either."
As Bloomberg notes, Jens Weidmann’s early exit as Bundesbank chief some give years before the end of his term adds another name to a long tally of Germans quitting the European Central Bank’s Governing Council before their time is up. Since the ECB was founded in 1999, just one Bundesbank president and one Executive Board member from Germany have finished their terms as scheduled. Those who departed early often cited the frustrations of the savings-oriented nation with loose policies and low interest rates. Weidmann did the same on Wednesday in a letter to staff where he signed off with a final expression of frustration at the inflation dangers fostered by ECB policies.
Executive Board member Sabine Lautenschlaeger quit in 2019 and her two predecessors on the panel also left early. Then-Chief Economist Juergen Stark resigned from the board in December 2011 over his opposition to stimulus measures, and Joerg Asmussen served only two years before leaving to join the German government.
Weidmann’s exit “doesn’t come as a surprise,” Stark told Boersen-Zeitung on Wednesday. “Nobody can support policy that runs counter to one’s own conviction for more than a decade.”
“Weidmann continues what has almost become a tradition of German central bankers leaving office before the official end of their term,” said Carsten Brzeski, an economist at ING in Frankfurt. “At the same time, ten years in office as Bundesbank president is not short.”
The successor to Weidmann, who was a former economic advisor to outgoing German chancellor Angela Merkel, will be picked by a new German government, to be formed when coalition talks conclude. ECB-watchers said potential Bundesbank chiefs include Claudia Buch, currently Weidmann's deputy, economists Volker Wieland, Marcel Fratzscher, Lars Feld, Lars-Hendrik Röller, and current Bundesbank chief economist Jens Ulbrich.
Isabel Schnabel, an ECB board member, is also a potential successor, although she would need to quit her current role, which some argue is a higher-profile job.
"Isabel Schnabel is doing a fabulous job at the ECB but I could think of no one better than Schnabel to lead the Bundesbank at this juncture," UniCredit economist Erik Nielsen said. "Perfect background and experience, and outstanding European and global respect."
After taking charge at the Bundesbank in May 2011, where he replaced another German superhawk Axel Weber as the euro zone's debt crisis raged, Weidmann was frequently in a minority at the ECB, voting against major policy moves pushed through by ECB chiefs Mario Draghi and Christine Lagarde. In July, the 53-year-old was among a handful of policymakers that opposed the ECB's pledge to keep interest rates at record lows until inflation stabilises at 2%.
Incidentally, the 2011 resignation of Axel Weber from the Governing Council, giving up his post at the head of the Bundesbank, thrust former Goldman Sachs crony Mario Draghi into the ECB presidency, and set off Europe for a course for unprecedented money printing. Until then Weber had been the frontrunner to succeed Jean-Claude Trichet, had he become president, the world would be certainly different today.
While he had become less confrontational in recent years, with many noting that his stonewalling was just for optics as his hawkish stance would always lose out in the end, his frequent criticisms made it difficult for the ECB to prop up public confidence in its policies and close a wide "trust gap" that opened up after the global financial crisis of 2007 on.
"A new Bundesbank president more in line with the ECB mainstream may make it easier to explain the rationale of ECB policies to the German public," Berenberg economist Holger Schmieding said. As if the German public needs more explanation that all the ECB can do is print in times of crisis and then also print when the crisis goes away.
The ECB, the central bank for the 19 countries that use the euro currency, has battled with sluggish price growth for a decade, but inflation has risen sharply in recent months and data on Wednesday showed it hit 3.4% in September. It now finds itself pressured to ease off the printing press as protests against soaring energy costs sweep Europe.
"I respect Jens Weidmann`s decision to step down from his position as President of Deutsche Bundesbank at the end of this year after more than 10 years of service, but I also immensely regret it," ECB President Lagarde said on Wednesday.