Regardless of who gets to succeed Jens Weidmann as Bundesbank president, it is important to recall that even conservative policymakers like him have not stopped the ECB’s unconventional approach.
In contrast with previous resignations, Weidmann did not step down during but ahead of the likely inflation and bond-buying debates ahead in the coming months. The incoming German government can include the succession question into its coalition negotiations. There is, of course, no guarantee that the next president – if it were to be another conservative – would act with similar restraint.
But even in a scenario where the center-right Liberals (FDP) insist on a traditionalist who acts more outspokenly, the traditional German approach is far from controlling a majority in the ECB governing council. The country’s powerful constitutional court may have requested public scrutiny and Bundestag involvement where budgetary sovereignty is affected. However, the basic parameters of unconventional monetary policy have remained largely unaffected.
Against this backdrop, another traditionalist voice at the helm of the Bundesbank might not be a bad thing. It would ensure continued representation and visibility for this strand of thinking within the system, particularly at a time when central banking has expanded its remit so far that it is becoming ever more politicized. However, any conservative candidate would have to possess an at least Weidmann-like willingness to play along with the non- traditionalist consensus ultimately; more hard-nosed Bundesbankers have quit earlier and more noisily over recent years.
From a medium-term political perspective, therefore, the issue to watch is where the conservative euro debate settles in Germany after the lessons of the last decade: no meaningful fiscal transfers and a merely bare-bones, Bundesbank-style ECB mandate had simply been too reductionist a construction to guarantee the survival of the Eurozone; however, political polarization between North and South (and at home, on both ends) blocked the political way towards closer integration during the crisis. Only the de-facto expansion of the ECB’s mandate did the trick.
While the Christian alliance (CDU/CSU) is scrambling to find a sense of direction, conservatives in Germany have two options. First, they can fully embrace the technocratic status quo in the Eurozone – as problematic as this may be with a view to democracy. Alternatively, they can take the democracy issue seriously and reconnect, after years of Angela Merkel’s reactive management, to Helmut Kohl. The CDU/CSU legend forged an unlikely coalition when he mobilized the German center-right in favor of the euro by making it the political flipside of German unification. Today, the German center-right would have to start asking itself what a conservative program for closer fiscal integration might look like.
The choice between these two uncomfortable options has driven German conservatives to despair for at least a decade now. Successive central bankers have ultimately found the related trade-offs too hard to bear and quit. However, outside these two approaches, the only other option would be to follow British conservatism and turn against the very integration project built by CDU heroes Adenauer and Kohl and defended by Merkel. Such a move appears unthinkable and would, in any case, destroy the party’s fortunes at the German political center. The main takeaway from Weidmann’s resignation is that it is high time for German conservatives to decide.