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Bundesbank president Jens Weidmann to step down

Mr. Weidmann’s departure means that the ECB will lose one of its most hawkish policy makers just as it ponders whether and how to shift away from its ultra-easy-money policies amid a surge in eurozone inflation.

Economists said the move was unlikely to substantially alter the direction of monetary policy in the currency area, however, since Mr. Weidmann’s hawkish stance was already in a minority at the bank.

German government bonds were little changed by the development. The 10-year bund yield traded 0.6 basis point lower on the day at minus 0.118%, having been at minus 0.116% before the announcement.

The German was a lead candidate to replace Mario Draghi as ECB president in 2019, but the position ultimately went to former International Monetary Fund Managing Director Christine Lagarde. Mr. Draghi is now Italy’s prime minister.

Mr. Weidmann, 53 years old, will leave the national stage at around the same time as his former boss, Chancellor Angela Merkel, giving Germany’s next government a chance to shape the eurozone’s monetary policy. Before being appointed to the Bundesbank, Mr. Weidmann was economic adviser to the chancellor.

His departure “may tilt the debate within the ECB a bit more in a dovish direction, but not very much,” said Holger Schmieding, chief economist at Germany’s Berenberg Bank. “He is not the only hawk on the ECB [governing] council.”

The Bundesbank said in a statement that Mr. Weidmann is leaving for personal reasons, without elaborating. “I have come to the conclusion that more than 10 years is a good measure of time to turn over a new leaf—for the Bundesbank, but also for me personally,” Mr. Weidmann wrote in a letter to the bank’s staff.

Mr. Weidmann’s succession is now in the hands of the next German government, which is expected to take office by the end of the year and will likely be led by Social Democrat Olaf Scholz, the current finance minister. Mr. Scholz has emphasized economic policy continuity during his electoral campaign but his advisers are known to be more dovish than Mr. Weidmann.

Mr. Scholz’s office didn’t immediately respond to a request for comment.

The next government will likely appoint a less hawkish successor, said Mr. Schmieding. “Perhaps Isabel Schnabel, currently on the ECB board, or somebody with similar mainstream views,” he said.

Andrew Kenningham, chief Europe economist at Capital Economics, said, “Weidmann’s successor is likely to be sympathetic to the incoming government’s views on the key issues, notably climate change and Europe. The latter may make it easier for the ECB to agree to maintain a very large balance sheet indefinitely.”

Mr. Weidmann differed publicly with Mr. Draghi over the ECB bond-buying programs that propped up struggling euro members during the region’s debt crisis. The public dispute between the two men was unusual in the genteel world of central banking.

Under Mr. Draghi, the ECB became the eurozone’s most important crisis fighter, in defiance of German orthodoxy that says central banks should stick to keeping inflation down. The institution lent cheaply and freely to eurozone banks, cut interest rates to around zero—in some cases below zero—and bought trillions of euros in government bonds. Ms. Lagarde has continued those policies, leaning heavily on a new €1.85 trillion bond-buying program, equivalent to $2.15 trillion, to help contain the economic fallout from the Covid-19 pandemic.

All of those measures provoked anger in Germany, where many savers park their money in fixed-interest products whose returns plummeted. They also made it a lot harder for banks and insurance companies there to make profits and rekindled old fears about inflation undermining the stability of the euro. Mr. Weidmann led the opposition to Mr. Draghi. He warned in 2012 that, for governments, “central-bank financing can become addictive like a drug.”

Mr. Draghi repeatedly complained in public that some of his colleagues were saying “Nein zu Allem,” German for “No to everything,” in a thinly veiled rebuke of Mr. Weidmann.

Mr. Weidmann had softened his tone on the ECB’s easy-money policies in recent years, though he has continued to warn about the risks of inflation becoming entrenched.

His successor will have a strong chance of landing the ECB’s top job when Ms. Lagarde’s term ends in 2027. The ECB was modeled on the Bundesbank and is based in the same German city, Frankfurt, yet has never been led by a German, even though the country is the region’s anchor economy.

Germany’s size and status as the benchmark sovereign lender in Europe meant that the Bundesbank de facto dictated the continent’s monetary policy before the creation of the euro. Under the common currency, it has now been supplanted by the ECB, with national central banks merely implementing its policy.

Ms. Lagarde said in a statement that she had “built a very strong and productive relationship” with Mr. Weidmann over the past two years and regretted his departure. “Jens is a good personal friend on whose loyalty I could always count. As the Governing Council`s longest serving member he had unparalleled experience that he was always ready to share,” she said in a statement.

In his parting statement, Mr. Weidmann urged his ECB colleagues “not to lose sight of prospective inflationary dangers” ahead.

Mr. Weidmann is the latest in a string of German central bankers to resign before their term has ended, often following policy disputes. Sabine Lautenschläger, the ECB’s top German official, resigned unexpectedly in September 2019 after questioning the need for a large stimulus. She had argued that Mr. Draghi’s aggressive interpretation of the bank’s inflation target was misplaced.

Two others—former Bundesbank President Axel Weber and former ECB chief economist Jürgen Stark—both stepped down in 2011 after criticizing the ECB’s decision to buy eurozone government debt.

 

This story has been published from a wire agency feed without modifications to the text

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