The resignation of Jens Weidmann, the current head of the Bundesbank, is both bad news and a warning signal. With him goes one of the last critics of a too lax monetary policy. Not good news for savers and our monetary system.
Jens Weidmann’s resignation at the end of the year comes as a surprise. His contract had only been extended by another eight years in 2019. But now Germany’s top central banker and ECB admonisher is retiring. The Bundesbank is thus facing a caesura and even more debt in the way, further buy-up programs and even higher inflation.
The success story of the Bundesbank
Yet it all started so well. Since its foundation after the Second World War, the Deutsche Bundesbank has been exactly what is ailing monetary policy today, namely a guarantor of the stability of the value of money. The reason for its success was the lessons learned from the disastrous policies of the bankrupt Reichsbank and the hyperinflation of the Weimar Republic, which were taken into account when founding this new central bank. History was not ignored. The disastrous effects of the 1920s demonetization were too present. The Deutsche Bundesbank opened a new chapter in monetary policy, and the institution proved to be the guardian of the strongest fiat currency of the past century: the deutschmark. Made in Germany. Due to its unmatched stability and value, the Deutsche Mark was appreciated and respected worldwide and even functioned as a parallel currency in some countries.
The misconception of the Euro
However, this success story came to a painful end with the introduction of the euro on January 1, 2002, after just over 53 years. Just like the D-Mark, the Bundesbank, with its strength, sovereignty and stability, fell victim to the misconstruction of the euro. For from now on, the ECB exercised the currency mandate and the Bundesbank was only a shadow of its former self.
But despite all the lost glory of the old days, the Bundesbank can still boast one record today. With a share of 27%, it is the ECB’s largest creditor. Good? No! Because this means that the Bundesbank is also liable to a considerable extent for the ECB’s policy. In for a penny, in for a pound. In addition, each euro country entitled to vote has exactly one vote in the ECB Governing Council, regardless of its share of liability. The consequences are clear: The bankrupt euro countries, which outnumber the others in terms of votes, vote for further devaluation of the currency and even more debt at the expense of the north, including Germany.
The euro currency experiment is a disaster, to say the least, the biggest insolvency disaster in the history of mankind. Since the financial crisis of 2008, the euro has been an intensive care patient, artificially kept alive by ever more debt and a perpetual zero interest rate phase, and slipping from one crisis to the next. There are no solutions; instead, the old recipe is applied with each new crisis and the printing press is fired up. However, this only buys expensive time and postpones the problems to the future, where they will cause even more economic and social damage. Eternal money printing has never solved a crisis, let alone created prosperity. Moreover, historically, every monetary union has failed so far. After all, it is nonsense to pursue a uniform monetary policy for economies that perform very differently. That the euro will be an exception to this rule is only believed in eco-socialist Berlin, where, as is well known, people have been living in a parallel dimension for quite some time.
Weidmann the ECB admonisher
Jens Weidmann knows that. But with the ECB as its figurehead, the Bundesbank is caught in the interest rate and currency corset of the European monetary guardian and must comply. Nevertheless, like his predecessor Axel Weber, Weidmann was one of the few admonishers on the ECB’s Governing Council. As early as 2011, when Weidmann was appointed as the new president of the Bundesbank during the Greek financial crisis, he was sharply critical of Germany’s political course and opposed the purchase of government bonds by the European bailout fund. When the ECB Governing Council voted in September 2012 on the decision to buy government bonds of euro countries without limits under certain conditions, he was the only one to vote “no.” For years, Weidmann has warned against the danger of inflation due to the constant expansion of the money supply and advocated a separation of monetary and fiscal policy. Moreover, he repeatedly warned that the ECB was not only risking its credibility by pursuing an unrestrained monetary policy, but was also failing to fulfill its responsibility to preserve the value of money. Weidmann’s criticism was always justified. The current inflation data of over 4 percent confirm this. However, he has never achieved anything with his criticism of the ECB’s lax central bank policy. The ECB’s debt levels are at record levels and the zero interest rate phase will not come to an end for the time being.
Nevertheless, Weidmann’s resignation comes at a very inopportune time. For although his criticism went unheard, a counterweight to the madness of the central banks, a normalization and separation of monetary and fiscal policy has never been more important than now. However, according to insiders, Weidmann had already been toying with the idea of retiring since 2019, when the ECB presidency decided against him and in favor of Christine Lagarde. Now he cited personal reasons for his resignation and assured Scholz that his decision was not related to the Bundestag elections. In fact, however, the planned debt-making of the traffic light coalition may already be causing Weidmann, who was born in Swabia, sleepless nights. Green Party leader Robert Habeck is already saying that Germany’s longed-for climate neutrality will not fail because of money. And the ECB’s decision on extending the PEPP pandemic emergency program, which is due in December, certainly won’t make Weidmann feel any better about the monetary future of the euro countries. In all likelihood, the ECB’s printing press will continue to run at full speed for an indefinite period. A path that Weidmann once again sharply criticized in the context of his resignation. He warned that it was necessary “not to look unilaterally at deflation risks, but also not to lose sight of perspective inflation risks.” But he was always alone in this opinion in the ECB Governing Council. In truth, Weidmann faces a mountain of problems as Bundesbank president: high inflation, debt-making by the traffic light coalition and the euro’s swan song due to ECB policy. He is leaving the sinking ship in good time.
Weidmann succession: The choice between plague and cholera
Weidmann’s successor is being discussed in the coalition negotiations between the SPD, the Greens, and the FDP. In the highly diverse Rainbow Berlin, a woman is wanted to head the Bundesbank, which has so far been run only by men. Among other things the Bundesbank vice-president Claudia book comes into question, thereby. However, there are doubts in central bank circles and even in Berlin as to whether the inconspicuous economist is up to the demands of this office. With such doubts, it remains a mystery how Buch was able to become vice president of the Bundesbank in the first place. Also under discussion is Isabel Schnabel, who is currently a member of the ECB’s Executive Board. She defends the ECB’s monetary policy in speeches that repeatedly attract attention. She also sold the public the fairy tale of temporary inflation for months. But since the beginning of October, she is no longer so sure. A possible male Weidmann successor is Jörg Kukies (SPD), who was state secretary under German Finance Minister Scholz. Kukies was formerly head of Germany at the scandal-ridden investment bank Goldman Sachs. He was also involved in the ominous Wirecard scandal. The head of the German Institute for Economic Research (DIW), Marcel Fratzscher, who was once head of the ECB’s economic policy analysis department, is also highly touted. Fratzscher also initially played down inflation concerns, but now warns of a wage-price spiral in view of an expected inflation rate of 4.5% in October. At the same time, he is a claqueur for the SPD, which means that the socialists in Berlin could warm to him.
Regardless of who succeeds Jens Weidmann as Bundesbank president, it is certain that things will get worse before they get better. The Bundesbank will become even more of a pawn of the ECB and will not stand in the way of the new federal government’s debt plans. The euro has thus been cleared for firing. All the more important that you actively take care of your assets now and pull your savings out of the banking circuit and out of the visibility of the state. There is still time, but this window will soon close.
The content of this article was translated from the German original: https://www.friedrich-partner.de/blog-post/bundesbank-chef-jens-weidmann-tritt-uberraschend-zuruck-verlasst-er-das-sinkende-schiff loaded 04.12.2021