New Bundesbank president faces tough choices ahead
Joachim Nagel will have to decide stance on ECB stimulus withdrawal and EU fiscal rules
No more Mr Nein
Jens Weidmann will bow out as president of the Bundesbank today with a final warning about the dangers of “fiscal dominance” in the eurozone as he hands over the reins of Germany’s central bank to Joachim Nagel, writes Martin Arnold in Frankfurt.
The risk that government debts have risen so high in the coronavirus pandemic that the European Central Bank may find it politically impossible to raise interest rates to tackle soaring inflation is one of many hot topics waiting in Nagel’s in-tray.
He will also confront worries about German inflation recently hitting a 30-year high of 6 per cent, while supply chain bottlenecks are throttling output in the country’s vast manufacturing sector and renewed coronavirus restrictions mean the economy is on the cusp of recession.
Nagel, a 55-year-old former executive at the Bank for International Settlements, worked at the Bundesbank for 17 years before leaving in 2016 and was chosen by Germany’s new government to take over after Weidmann decided a decade in the job was long enough.
The position — running an institution with more than 10,000 staff and a €2.5tn balance sheet — is somewhat unusual because the Bundesbank gave up many of its main monetary policy powers when the ECB was created more than 20 years ago.
However, as Bundesbank president, Nagel is a member of the ECB’s 25-person governing council and, as a representative of the eurozone’s biggest economy, will play a key role in setting ECB policy.
At a “virtual ceremony” today, Weidmann will welcome Nagel to the job while warning him to watch out for monetary policy being held hostage to fiscal policy. This has been one of the outgoing Bundesbank boss’s biggest concerns as vast ECB bond-buying has kept borrowing costs extremely low even as government debt levels have risen sharply.
Nagel, who has previously voiced similar fears, may also sense concern about Germany being isolated in the vital debate over how to reform the EU’s fiscal rules after French president Emmanuel Macron and Italian prime minister Mario Draghi wrote a Financial Times article calling for a revamp to spur investments and drive long-term growth.
ECB president Christine Lagarde will also speak at today’s event and is likely to be generous in thanking Weidmann for his constructive contribution in shaping policy, while welcoming Nagel to the fray.
Lagarde may not see eye-to-eye with Weidmann on many issues, but they seemed to build a more constructive relationship than he had with her predecessor, Draghi, who dubbed the German nein zu allem — no to everything.
The honeymoon period for Nagel will not last long before he has to decide where he stands both in the debate on how fast the ECB should withdraw its stimulus to counter high inflation and on whether Germany needs to be more assertive in reshaping the EU’s fiscal rules.