01/24/2014 04:40 PM
The Bull in the Euro Zone's China Shop
By Ullrich Fichtner
German Central Bank head Jens Weidmann has developed a reputation in Europe for saying no to everything. He is skeptical of efforts to save the euro and isn't shy about saying so. But is he right?
In Jens Weidmann's world, the cup is almost always half-empty. As much as he doesn't like hearing about it, he is a man who can even find fault with a rare moment of winter sun shining through his office window in Frankfurt.
"Big windows are nice," Weidmann says, referring to the view, "but the sun heats up the room very quickly." The president of Germany's central bank, the Bundesbank, then shuts the blinds. His office on the building's 12th floor becomes as dark as though it were in the basement.
His large desk is covered with piles of binders and folders containing urgent European Central Bank business, reports produced by his staff and personnel issues. Weidmann points to the stacks when asked how he plans to spend the rest of his day. His facial expressions betray neither displeasure nor pleasure -- just the constant and comfortably friendly vibe he seems to perpetually exude. "That should keep me busy until the evening," he says, offering more of a statement of fact than any kind of hidden message.
A Fierce Advocate
Weidmann is a man of duty. He's Europe's fiercest advocate of price stability and of a rock hard common currency. And who knows? It's possible he may be the last one.
Since the people of Europe began to express doubts about the European project, since their governments began to seem incapable of producing anything more than wishy-washy compromises, the power of the money men -- the heads of central banks in the euro zone and European Central Bank board members -- has increased. Those following press conferences with ECB President Mario Draghi in recent months could be forgiven for believing that the gathered journalists were asking questions of the Continent's true president, the only one who seems to have the power necessary to make decisions for Europe.
Indeed, by merely uttering a single sentence, Draghi can move markets to the tune of billions of euros, drive prices, change interest rates, bring down entire countries, topple governments -- irrespective of whether the statement is erroneous or deliberate. The power of the ECB and its president, a man who doesn't have to answer to parliaments, governments or voters, has increased massively during the euro crisis. That has also put Jens Weidmann, as president of the ECB's largest member bank, in the uncomfortable position of being a constant watchdog.
Skepticism of the ECB's Power
At times when others are proposing solutions, Weidmann seems to be busy sowing doubts. He is the man who says "no" when the majority have already agreed on an issue.
To put it mildly, he views the ECB's new role and political power skeptically. Over the course of the last two years, he has also steered himself into the extreme minority. Sometimes, he is the only member of the ECB's Governing Council in the minority. In theory, that could of course mean that Weidmann is the only one who has been correct about things all along. In truth, though, it often looks like a kamikaze who still believes he's the only one who knows the correct path.
It's a characterization he rejects. Weidmann says he's in no way a know-it-all -- and neither is he a troublemaker. He blames the media for many of what he says are false impressions of him. "As soon as I go anywhere," he says, "I am taken very seriously because of the importance of the Bundesbank. But I'm not some kind of ringleader." That was the commentary he offered in his Frankfurt office after the ECB Governing Council decided to lower the key interest rate from 0.5 to 0.25 percent in November, a move he opposed.
This time he wasn't alone in his decision. It was six against 17 -- and Weidmann had asked that the option of waiting, and delaying the lowering of the interest rate by at least a month, be discussed. ECB President Draghi listened, thanked his colleague Jens for his remarks and then just pushed ahead with the vote. It was 17:6 against Weidmann.
Business papers like the Financial Times and the Wall Street Journal made a big fuss over the vote, describing it as a major divide on the ECB Governing Council, a showdown between Draghi and Weidmann. Once again, the council's German member had revolted. The idea that, this time, the Italian ECB president may have been responsible for the division, and that Draghi would only have had to wait four weeks for a unanimous decision, didn't occur to any of the editorialists. And that's very dangerous for Weidmann.
Has Weidmann Gone too Far?
He is now living with the risk of being regarded solely as Germany's Herr Nein -- a person who is no longer taken seriously because the only thing he seems to be capable of saying is "no". Finance ministers from Germany's neighboring countries -- who just a few years ago nervously followed Weidmann's every word -- are openly dismissive today. With five years left to go in his term as head of the Bundesbank, it's possible he's already gone too far.
Weidmann openly admits in interviews that he's thought about this question, but he denies there's any truth to it. He says his influence hasn't diminished in any way, that people still listen to his positions. After all, he insists, they're well-founded and argued logically. He describes reports to the contrary as "perturbing and anything but helpful." Besides, he adds, "It would be problematic if we all had the same opinions when it came to difficult decisions taken under a high degree of uncertainty. Europe has to live with the fact that we're struggling to find the right path."
Accompanying Weidmann, observing the way he operates on grand stages in Washington or during appointments in Berlin and Mainz, watching him during longer working sessions in Frankfurt, or even sitting down with him for a cup of coffee in Paris -- none of that really helps to get closer to him as a person. The Weidmann you meet the first time is precisely the same person you encounter the tenth time. He comes across like a man without moods, with a stable temper to match -- the same kind of stability he would like to see for the euro. It would be difficult to imagine him getting angry, much less losing his composure.
One time in October, Weidmann found himself sitting across from German Finance Minister Wolfgang Schäuble in Washington in a basement lounge of the Park Hyatt hotel. The global monetary policy circus had landed in the US capital city for the fall meeting of the World Bank and the International Monetary Fund. The events were largely drowned out by rain and the deafening ruckus surrounding the US budget battle. Weidmann was smack in the middle of everything.
After a long day of meetings, Schäuble and Weidmann hosted a reception for about three dozen financial journalists at which sausages and other German foods were served. They spoke in the enigmatic language of the monetary policy world, with clever insinuations and coded expressions of power. Compared to Schäuble, a veteran of German politics, Weidmann seemed like some kind of brittle assistant professor. A visibly exhausted Schäuble managed to speak freely and amusingly to the gathered journalists, but the Bundesbank president came with a canned script and stuck to it.
Chewing on a sausage as he spoke, Schäuble grunted that the role of central banks was overrated and advised them to once again remember the "purpose they were intended for." At that point, Weidmann really ought to have responded with some kind of humorous comeback. Instead he just offered an embarrassed smile. It's not always easy being Jens Weidmann. His constant friendliness, his soft voice and his smooth face seem to just beg people to underestimate the man.
One of Berlin's Most Powerful Men
When he first got appointed to head the Bundesbank in 2011 at the age of 43, many observers considered him too young for the job -- claiming he was clinging to Angela Merkel's coattails and was wet behind the ears. It was all a media-fueled illusion. Even then, Weidmann was much more than that. He was no longer just the high school student from the Stuttgart area. He was no longer the MBA graduate who had studied in Aix-en-Provence in France and in Bonn. Rather, he was already one of the most powerful men in Germany.
As a high-ranking member of the highly influential German Council of Economic Experts, he had helped formulate reports that essentially became the blueprints for Germany's famous Agenda 2010 structural reforms that many credit with the country's current economic success. As head of the monetary policy department at the German central bank, he already had considerable involvement with the ECB. And as head of the economics and financial section of the Chancellery starting in 2006, he became a powerful behind the scenes decision-maker and a very close confidant of Chancellor Merkel. Responsibility for dealing with the fallout from the Lehman bankruptcy in 2008 largely landed on his desk, which, like today, was piled high with folders and files. He laid the groundwork as Chancellor Merkel's sherpa at countless summit meetings, a stress-resistant and tireless worker.
It was absurd to underestimate him the way many did when he took over the Bundesbank's leadership. Yet he became the head of an institution that had been led in the past by gruff former central bankers like Karl Otto Pöhl, Helmut Schlesinger and Hans Tietmeyer -- men whose names are often evoked during moments of nostalgia for the greener pastures of the deutsche mark and the halcyon days of West German politics in Bonn. Weidmann even seemed green in comparison with his direct predecessor, Axel Weber. He seemed like an apprentice when he started -- like some student fresh out of college, without any edge or spine. He had to quickly prove just how wrong those prejudices were.
A Stubborn Leader
In the three years he has served thus far, Weidmann has proven himself to be an iron-willed advocate of the European currency and perhaps the most decisive and stubborn leader the German central bank has ever seen. Indeed, he has been so uncompromising that it raises the question as to where his immovable convictions come from.
Ten thousand people work for him: lawyers, economists, mathematicians and statisticians. More than anything, the Bundesbank is a gigantic think tank; it is really much too large for its current role. But its size means that Weidmann's positions are consistently grounded in first-class research, some of which has taken place over the course of several years. And yet monetary policy, the primary task of central banks, is far from an exact science, as Weidmann himself admits. It is, in fact, horrifically complex.
Everything is somehow connected with everything else: Portuguese economic indicators with Hungarian bank rates with US industrial output; German imports with Ukrainian tax rates with Italian energy costs with Austrian wage agreements. That may sound like a caricature, but it isn't. Monetary policy is an arena for mathematic acrobats whose conclusions are unfailingly based on endless equations with myriad variables. They culminate in models that are supposed to somehow make sense of the wild cacophony of capitalism, and of our own eternal economic volatility.
Creating Money from Nothing
Because of its complexity, monetary policy is often presented as little more than the rising or falling of the interest rate, which is set by the ECB Governing Council to heat up or cool down the economy. But in order to understand Weidmann's world a bit better, one has to understand at least one additional ingredient in monetary alchemy: namely that the ECB and its member banks do not actually have the money that they spend. Rather, they create it out of nothing. The euros that they loan to commercial banks or use to buy up sovereign bonds did not previously exist. They are created in the moment that they are disbursed. When it is said that the ECB has begun printing money, it is this process of money creation that is meant.
In recent years, the ECB has created vast quantities of new money for the purpose of combatting the crisis: hundreds of billions, the trillion-euro line was quickly crossed. The fresh liquidity was injected into the money supply already in circulation in the form of low interest rates for the banks. The ECB also bought huge quantities of bonds from struggling euro-zone member states, an operation which seemed necessary because creditors were demanding interest rates of 6, 8, 10 or even 14 percent. ECB intervention in the summer of 2012 put a stop to such ruinous returns and, as is now widely accepted, saved the euro zone from collapse in the process. Yet it is exactly these policies that Jens Weidmann finds objectionable.
Weidmann has never said publicly that he considers the ECB's bond buying program to be dangerous. Rather, his verbiage, though it often sounds provocative, is ultimately little more than a recapitulation of the applicable laws, European treaties, summit agreements and stability pact provisions. While the entire world is hectically searching for a solution, he argues principles. At the edge of the abyss, Weidmann insists on the letter of the law. In doing so, he often seems like someone starting a debate about sensible fire protection measures in the flickering light of his neighbor's burning home; as though he would only help extinguish the flames once his neighbor pledges in writing that he will rebuild his house in such a manner that it will never again catch fire.
That, in short, is the Bundesbank's position in this crisis -- and, to a large degree, Germany's. Help will only be provided once it is contractually guaranteed that such aid will never again be needed. It is a position that is not only out of touch with reality, but also raises the question as to why Europe is necessary in the first place when conflagrations and other such crises are not allowed for.
Weidmann says that the currency union cannot become a community of shared liability. He says that national governments are responsible for their own budgets and debt. He says, "those who reap the benefits must also carry the risk."
His speeches are generally greeted with nodding heads and approval; that, at least, is the standard reaction to his public appearances in places like Mainz, Karlsruhe, Munich and Berlin. Those who admonish and warn are generally well received in Germany. When Weidmann wishes to emphasize a certain point, he often tensely presses his fists together in front of his midriff. When a point is particularly important to him, he will quote long passages in the English original from old EU position papers. With him, it's always a seminar and his no-nonsense attitude is popular, even when -- as during one appearance in Düsseldorf -- he strays far from the topic at hand and holds forth on all manner of economic policy issues. In such moments he comes across as a person who enjoys his current position, but who has also planned his career in detail and who is laying the groundwork for future tasks, promotions and political offices.
At present, however, his desk is covered with bloated towers of files and briefs relating to yet another mammoth project that has been initiated: the creation of a European banking union. Weidmann has already established his position on the issue: He believes that good intentions have been crippled by ill-advised compromises. He has been sermonizing on the matter for months, censuring the muddled way in which Europe arrives at decisions with his unique acerbity and odd inflexibility. Without success. Shortly before Christmas, European finance ministers once again turned to the banking union project and transformed the bad compromises that had already been made into even worse ones. It must be desperately difficult to be Jens Weidmann sometimes, trapped in this agonizing, never-ending effort to save Europe.
Weidmann doesn't want to live in a world in which treaties and laws are worthless, an understandable position. But it often seems as though treaties and laws are everything for him and that Europe is nothing but an entity derived from the legalese. His objections, Weidmann says, "don't exactly increase my popularity among my colleagues, I am aware of that. But if they don't stand up for their convictions, it will be difficult to prevent a red line from being crossed." That is, in one sentence, Weidmann's creed.
Was Weidmann on the Wrong Side of History?
It is the same approach that was driving him the first time he really garnered much attention outside of financial circles. It came during that fateful summer of 2012 when Weidmann became the only member of the ECB Governing Council to vote against Draghi's plan to expand large-scale purchases of sovereign bonds. It is easy to forget just how momentous those weeks were. The markets were testing Europe by toying with the heavily indebted euro-zone member states. The common currency was on the brink of failure. Everyone was betting that the euro zone would disintegrate.
But then ECB head Mario Draghi uttered one of those sentences that moves billions of euros within seconds, changing prices and interest rates in the process. The ECB, he said in London, would defend the euro using all measures at its disposal. "Whatever it takes," he said. It was the "bazooka" that everyone had been waiting for, a direct threat to turn all of the market's pessimistic bets into losers. It was the sentence that saved the euro zone from implosion. That is how it seemed at the time and that is what many believe to this day.
So was Weidmann on the wrong side of history at this pivotal moment? "There are differences of opinion on that," he says. "Would the world have ended without the announcement of additional bond purchases? Or was it a step toward communalized liability which will make our lives difficult in the future?"
In Weidmann's world, Europe is a grim institution because present-day actors do not display sufficient foresight. In the long term, everything is at risk: the currency, the community, the future. The danger could be averted, however, were everyone to finally respect the treaties currently in force: the Greeks, the Spanish, the Irish, the French, the Germans, the Belgians, the Hungarians. If only the many rules established by the various pacts were finally to be followed.
If only member states would realign themselves, balance their budgets and reform their structures and governments. That is Weidmann's message. And he is right.
Weidmann's misfortune is merely that the world won't conform to his vision anytime soon. Europe will remain a chaotic construction site; a place where staggering and lurching toward minimal consensus is perhaps the best strategy. But Weidmann would never consider such a thing. His convictions are immovable. And he has the data to back them up. He believes that sacrificing one's convictions will lead to doom down the road. But how long is that road? And what does it really mean in politics, in life, to be right "in the end."
A History that Stands in the Way of European Unity
Weidmann also thinks about questions such as these in his office on the 12th floor of the Bundesbank building, a low structure on the edge of Frankfurt which, with its three-sectioned façade, looks like nothing so much as an oversized winged altar. The edifice has little in common with other famous centers of monetary policy -- not with the fortress-like Bank of England in the heart of London, not with the labyrinthine Paris city palace which houses the Banque de France, not with the solid sturdiness of the Federal Reserve in downtown New York, which still stores much of the world's gold deep down in the granite bedrock below.
The Bundesbank, the building alone, tells a very German story; that of a new beginning and post-war order; that of the economic miracle and the country's return to prominence. It is a history that, ultimately, also stands in the way of European unity.
The current debate as to whether the entire currency union project was misguided from the beginning is one that focuses squarely on Germany. It has to do with the country's fears of inflation and its craving for stability. It is not enough for the Germans that the structures of the ECB were modelled after those of the Bundesbank. They really do want the euro, in accordance with the covenant, to become a kind of European deutsche mark, a global currency that adheres to German criteria -- criteria that all Europeans, regardless of their historical paths and detours, regardless of the current status of their development, regardless of their cultures, must submit to.
But now, at the beginning of 2014, following years of crisis management, it would seem that nobody really wants to anymore. It feels as though doubts about the euro, which seemed for decades to be unjustified, are suddenly -- for the first time -- appropriate. Germany's neighbors, the French first and foremost, are currently living with the unpleasant feeling -- justified or not -- that they have no choice but to ultimately manage their affairs, work and live like the Germans. And the Germans -- justified or not -- have a constant fear that they will ultimately have to pay for the allegedly easygoing lives led by the others.
Europe's Savior or a Threat to It?
Weidmann, in his own way, has contributed to both sentiments. It is not easy to decide whether he represents a danger to Europe or is among its saviors. What is telling, however, is the fact that he doesn't answer when asked if he dreams of a united Europe. At least he doesn't say yes or no, rather he formulates tortuous sentences like this: It is necessary to ensure that European institutions guarantee certain visions of stability and that the euro zone must remain a stability union because its widespread acceptance, primarily that of the Germans, depends on it. He then adds: "That wasn't terribly emotional."
It likely never will be with Weidmann. That is a function of his professionalism, of his business and of monetary policy. But it is also has to do with he himself, his personality, what he gives of himself and how much he keeps hidden. The German newsmagazine Stern once wrote that he breeds peonies in his free time. It remains the only detail from his private life that has found its way into the public sphere and is so valuable, that hardly a single portrait of Weidmann written since has left it unmentioned.
But that detail too is only half right. The Bundesbank president is fond of gardening -- to keep him balanced, he says -- and botany has always interested him. And, yes, he does have four or five peonies in his garden, including a couple that he brought home from a trip to Japan with the chancellor. But, Weidmann says, he is certainly not a breeder. "It's good that we could correct that misconception," he adds. There is no hidden message, no irony in his voice. It is just a statement of fact.
Translated from the German by Charles Hawley and Daryl Lindsey