Jens Weidmann, 46, has been at the helm of Germany’s central bank, the Bundesbank, since 2011. As guardian of the country’s monetary policy, he has more than once clashed with Mario Draghi, head of the European Central Bank. In particular, Mr. Weidmann, who is also a member of the ECB’s governing council, has opposed Mr. Draghi’s policy of quantitative easing. While he has received backing from the German government, Mr. Draghi has gotten his way in Europe: This Monday, the Italian’s trillion-dollar bond-buying program has kicked into gear.
Mr. Weidmann sat down with Uwe Jean Heuser and Mark Schieritz to talk about the new flood of money, the deeper causes of the crisis and political backing in times of confrontation.
Die ZEIT: Mr. Weidmann, there’s a quote we’d like you to hear.
Monetary policy is about phasing out the non-standard measures introduced in response to the crisis and drawing a clear line between monetary policy and fiscal policy. Do those words ring a bell?
Jens Weidmann: Yes, they certainly do.
That’s what you said when you took office more than three years ago. What’s happened in the meantime?
Plenty of things have happened. Tension has ebbed and flowed as the euro area crisis has progressed, but those words are no less relevant for the future path of monetary policy than they were back then.
The European Central Bank has begun buying up government bonds, so we don’t appear to be anywhere near phasing out the measures introduced to tackle the crisis right now.
That’s true. But I have repeatedly pointed out that the crisis is more like a marathon than a sprint – and that it’s going to take a great deal of time to overcome the root causes of the crisis. So it’s very tempting indeed to dump the problem at the door of monetary policymakers. But there’s no simple way out of the crisis, and firing up the printing presses in particular won’t eliminate the problems that sparked the crisis in the first place.
But no one is listening to you.
I wouldn’t say that.
Time and again, you’ve been outvoted in ECB governing council meetings, most recently in the decision a few weeks ago to purchase government bonds.
The first account of the governing council’s monetary policy meeting was published last week. Read that document and you will see that many a council member argued along the same lines as myself about the government bond-buying program. And those who ended up voting in favor of this program are certainly also aware of the risks involved. It’s just that after weighing all the arguments, they arrive at a different conclusion. Chiefly because they take a different view of the risk involved in a protracted period of very low inflation rates or even of deflation.
Can you live with being outvoted as long as you can put your concerns on record?
Certainly not. I want my arguments to have a bearing on decisions, but I accept that the governing council passes its decisions by majority vote. And I wouldn’t say my criticism is falling on deaf ears. The government bond-buying program certainly includes elements which acknowledge the concerns voiced by myself and others. The scope for mutualizing government solvency risk will at least be curbed because national central banks will only be able to purchase government bonds issued by their home country.
Why does it increasingly appear as though Germany is isolated internationally in the economic policy debate?
That’s not the impression I have gained in the ECB governing council, the euro group [of European finance ministers] or in other international forums. What I do see, though, is that a number of economists – chiefly in the United States – do not consider all the facets of what makes the European monetary union so unique. Some in these quarters are quick to call for joint liability or monetary financing of the public sector…
… that is, the central bank assuming a country’s debt…
… and that’s something which is prohibited under the European treaties, and rightly so. Don’t forget that unlike in the United States, the euro area is not a political union with a single central federal budget, but 19 member states, each of which runs its own national fiscal policy, and it was agreed that the assumption of joint liability here would be prohibited, and that counts for monetary policy, too. What this means is that the euro system operates on a different playing field than the U.S. Federal Reserve system. And you don’t need me to tell you that economic policy debates are always a reflection of national interests.
Let me give you an example. Countries which have lost the confidence of the capital markets are quicker to call for assistance from monetary policy or joint liability for sovereign debt than others.
What about renowned U.S. academics like Kenneth Rogoff or Larry Summers – have they got interests, too?
Both gentlemen are outstanding economists, and “interest-driven policymaking” isn’t a term I would use here. Here in Germany, we place greater emphasis on institutions and agreements, and maybe we’re more mindful than the Anglo-Saxon world of the incentives created for sound economic activity. This point, I believe, is crucially important for Europe – a currency union always offers the possibility to pass on the burden of excessive indebtedness to others, making unpleasant reforms appear rather less urgent.
Could you give us an example of how the others see matters?
Finance Minister Wolfgang Schäuble and I recently attended the G20 summit in Istanbul. The impression I gained from many colleagues there was twofold – “resolve Greece’s problems in the euro area once and for all” and “hammer out a compromise to restore calm.” Those are views I can well understand. Short-term uncertainties are not desired, the medium- to long-term outlook takes more of a back seat. Joint liability is generally regarded as a silver bullet. But that’s not an angle we can take, given our responsibility for Europe’s fortunes. If the euro area is to remain a union of stability, we are duty-bound to heed the promises made to the general public as well as the commitments which countries made when they acceded to the monetary union.
ECB president Mario Draghi argues that the rules are not being complied with for the simple reason that the inflation rate is below its target level.
The price outlook is indeed very muted, but a major factor in price dynamics is the drop in oil prices and the ongoing adjustment processes in the countries affected by the crisis. Yet the plummeting oil prices will have little more than a short-lived impact on the inflation rate, and at the end of the day, lower oil prices act rather like a small stimulus package for the economy, shoring up projections of a gradual recovery. In my view, there was no need for monetary policy to respond with extensive government bond purchases. I feel the risks and problems entailed in this response outweigh the upside potential.
The federal government’s criticism of the government bond-buying program was rather muted. Do you feel left in the lurch?
I make my monetary policy decisions independently of the federal government, but I don’t see a fundamental disconnect between our standpoints.
Berlin didn’t come out and openly criticize the ECB’s decision. Would you like to have had more backing?
Of course, I’m happy to get backing for my position, be it from Berlin or elsewhere. But our work would suffer if we made political approval a precondition for our monetary policymaking. It is up to the ECB’s governing council alone to decide what is right, whatever politicians might say.
As a former economic adviser to the chancellor you were once very close to Angela Merkel, and many of the views she holds to this day are your work.
You’re most certainly underestimating the independently-minded way in which the chancellor tackles economic policy matters.
Has your personal relationship suffered?
Our personal relationship is good, taking into account a clear division of responsibilities. My role as Bundesbank president is completely different to that of an economic advisor. I cannot simply demand that politicians put no pressure on monetary policy and at the same time go to Berlin and either solicit public support for my position or call for this from the federal government.
Mr. Draghi does exactly that. He went to the chancellor and the federal finance minister and attempted to convince them of his plans – and not without success.
I think it is perfectly normal that the ECB president holds meetings with government representatives. I, too, am a regular visitor to the cabinet and I, too, hold regular meetings with representatives of the federal government. But ultimately these meetings have to be about clarifying monetary policy and exchanging views rather than coordinating with politicians.
You expect us to believe that?
Yes, I argue the case for independent monetary policy in these meetings, too.
Are you more of an economist or Bundesbank representative in such situations?
I cannot separate one from the other. I see no contradiction between the opinion of the Bundesbank – or my role as its president – and well-founded economic reasoning.
Is a Bundesbank president required to play a certain role?
Institutions naturally have a certain tradition or a clear mandate, such as price stability in our case. But, in the end, it is all about whether arguments are justified and whether policies are successful. In this regard, the work that the Bundesbank does definitely speak for itself. Of course, that does not mean that the Bundesbank has never been wrong.
When have you been wrong?
To cite one example, I think that the disciplining effect of the capital markets on government budgets was overestimated. The idea was, after all, that the capital markets would prevent any one member state from kicking over the traces. It did not work. Greece, for example, was able to borrow money cheaply right up until the outbreak of the crisis despite having already ramped up high deficits.
Euro-zone finance ministers agreed last month to extend Greece’s assistance loans. Do you find that acceptable?
Governments have quite rightly insisted that Greece honor its agreements. But, at the end of the day, implementation is key. For me as a monetary policymaker, it is essential that politicians solve problems rather than shifting them to the central banks. The eurosystem is not responsible for ensuring the solvency of either banks or governments.
Would a Greek exit topple the first domino in a potential chain of countries exiting the euro zone, or would it lead to a display of even greater discipline in the rest of the euro area?
I do not wish to speculate on exits and I am sure that no one can precisely gauge what the consequences of an exit might be. The short-term spillover effects would definitely make less of an impact than in previous years. But it is crucial for me that we maintain the monetary union as a union of stability. Ultimately, this also involves countries independently playing by the same rule book.
Do you ever wonder whether Europe would be better off now if the euro had not been introduced?
No, that is a hypothetical question …
… but it is still an interesting one.
… but one which I do not think about because it does not get us anywhere. The euro is our common currency. It is important that we work on solving the fundamental problems in the euro area and its member states – and there is still much to be done.
Would more progress have been made in Europe already if your recommendations had been heeded?
That, too, is a hypothetical question. But I think that the areas of responsibility covered by monetary policy and fiscal policy would have remained more clearly separated and that we would perhaps, therefore, have made more progress in combating the true causes of the crisis.
Still, the economies of most member states are picking up again. In the eyes of many, this has to do with the fact that the ECB contained the crisis.
It brought a certain level of calm to the financial markets and bought politicians time, but this also repeatedly sparked, and continues to spark, new calls for monetary policy. Several governments, including larger euro-area member states, did not make use of this time.
The governments in France and Italy have finally accepted that reforms were put on hold for too long, which is also reflected in these countries’ low growth rates.
The Italian government has adopted labor market reforms and France, too, wants to liberalize its economy.
Implementation is key, especially when it comes to labor market reforms. It remains to be seen to what extent the reforms will be effective. I sincerely hope that we see success here because both of these countries are extremely important with respect to maintaining the stability of the euro area.