Bundesbank President Jens Weidmann will step down more than five years early. This will open the door for Germany’s new government to pick a less confrontational successor. Weidmann said that he would leave for personal reasons on Dec. 31. This has revived growth but also pushed inflation to its highest rate in over a decade. Among the most conservative members of the ECB’s Governing Council, Weidmann often found himself in opposition to fellow policymakers.
Even as he announced his departure, he warned about inflation risks. He stated that it will be crucial not to look one-sidedly at deflationary risks, but not to lose sight of prospective inflationary dangers either. The successor to Weidmann, Angela Merkel, will be picked by the new German government, likely to be a left-leaning coalition led by current finance minister Olaf Scholz. The change in government may also mean easier fiscal policy.
Highlighting the personal nature of Weidmann’s resignation, he informed ECB President Christine Lagarde and Scholz. ECB-watchers said potential Bundesbank chiefs include Claudia Buch, now Weidmann’s deputy, economists Volker Wieland, Marcel Fratzscher, Lars Feld, Lars-Hendrik Röller and Jakob von Weizsäcker, and current Bundesbank chief economist Jens Ulbrich. Isabel Schnabel, an ECB board member, is also a potential successor. None of the euro zone’s 19 national central banks is led by a woman.
UniCredit economist Erik Nielsen said that Isabel Schnabel is doing a fabulous job at the ECB. But there is no one better than Schnabel to lead the Bundesbank. After taking charge at the Bundesbank in May 2011 as the euro zone’s debt crisis raged, Weidmann was frequently in a minority at the ECB. ECB President Lagarde said that he respects Jens Weidmann’s decision to step down from his position as President of Deutsche Bundesbank at the end of this year. This is after more than 10 years of service, but he immensely regrets it.
Weidmann’s criticisms made it difficult for the ECB to prop up public confidence in its policies. Andrew Kenningham at Capital Economics said that the change will not cause a dramatic policy shift as the Bundesbank is only one voice in the ECB Governing Council, where monetary policy is determined. But the new President is likely to be more supportive.