Tschüss to Jens Weidmann: Head of Bundesbank to step down
November 6, 2021
3 min read
What's going on here?
Jens Weidmann, head of Germany’s Central Bank, has handed in his notice. Known for being critical of excessive bond purchases, Weidmann’s departure will leave the door open for a shift in German economic policy.
What does this mean?
The Deutsche Bundesbank, or German Central Bank, is responsible for regulating the country’s monetary policy and managing inflation. Two years ago Weidmann was elected to hold his position until 2025. However, he has decided to step away early. After over 10 years at its helm, Jens Weidman has cited “personal reasons” for his departure.
In the Eurozone, national central banks work alongside the European Central Bank to control monetary policy across the 19 countries who use the Euro. However, Weidmann was often critical of the ECBs work and its “ultra-loose monetary policy” which included purchasing a high number of bonds. Weinmann was perhaps opposed to these policies because of Germany’s previous issues with inflation during the hyperinflation crisis of 1923 in the Weimar Republic. Inflation in the eurozone hit 3.4% this year, the highest it has been in 13 years and Weidmann has been critical of the ECB’s “dovish” attempts to manage rising costs.
When speaking on the ECB’s approach to monetary policy after announcing his departure, Weinmann took a more balanced view. He explained that “it will be crucial not to look one-sidedly at deflationary risks, but not to lose sight of prospective inflationary dangers either”.
What's the big picture effect?
The past two Bundesbank chiefs have also left this position before the end of their tenure, testament to the challenging nature of the role. Weidmann’s departure also cements the wider political and economic shifts currently occurring in Germany. With Angela Merkel stepping down as Chancellor, Weidmann’s successor will be chosen by the new government. The German federal elections held in September 2021 ended without a clear winner. The Social Democrats are currently in talks with other parties including the Free Democrats and the Green Party, and are likely to lead the coalition and have the final say over Weidmann’s successor. These parties have a much more liberal approach to the economy than Weidmann and the currently governing conservative Christian Democratic Union Party. The new coalition is likely to prioritise a greener economy which is in line with the wider direction the ECB is taking towards ethical investments.
The ECB is currently dealing with the fallout from its Covid 19 stimulus package which heavily relied on purchasing public debt and involved issuing €20 billion in bonds each month. Long term increases in debt can lead to a higher risk of countries defaulting on repayments . The ECB has taken the decision to lower current interest rates making it much cheaper to borrow money. This policy, alongside issuing more bonds, has also increased the risk of rising inflation, much to Weidmann’s dismay. There is a fear that with Weidmann gone, Germany may not be in such a strong position to challenge these perceived dangerously inflationary policies.
After his departure was announced, current ECB president Christine Lagarde praised Weidmann asserting that “as the Governing Council’s longest serving member he had unparalleled experience that he was always ready to share.” Although a controversial figure, Weidmann’s departure will undoubtedly be felt across the ECB.
Report written by Amber Allen
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