Full transcript of Weidmann interview
Q You have experienced the euro crisis in the background as an adviser to Chancellor Merkel in Berlin and in the foreground as Bundesbank president in Frankfurt. Which position do you prefer?
A I’m very satisfied with my position here. The Bundesbank fulfils an important mission in safeguarding price stability, and expressing one’s opinions openly and having to stand behind the consequences of what I say is very much to my liking. Of course, I also enjoyed my work in the Federal Chancellery and learned a lot about the political arena there. I didn’t have to distort my positions in Berlin; it was a very open and collegial co-operation, but I was an advisor, not a policy-maker. I came from the Bundesbank originally, and when I was asked to return and become its president I happily accepted this challenging and interesting task.
Q: Your former professor Prof Manfred Neumann says of you: “Jens is very polite and prefers taking partners to one side for a talk rather than the method of (ex-Bundesbank president) Axel Weber method of banging on the table - which has been proven not to work.” Is that a fair description of how you like to operate?
A I don’t know if many colleagues in Europe would share this view. The current perception is not necessarily that the Bundesbank or its president hold back their views. But Manfred Neumann is right in that I don’t adopt a personal tone. Rather I attempt to keep things at a professional level, being friendly and respectful. In trying to convince people and achieve something, it’s always better to exchange arguments than drift into personal conflict, which by the way wasn’t Axel Weber’s approach either.
Q Were there any occasions of late in the ECB tower where you banged on the table, or wanted to?
A For me it’s not about banging on the table but about presenting consistent, clear opinions that reflect my fundamental convictions. It’s about going into deep discussions, assessing different views and about trying to convince.
Q Your crisis mantra has been that monetary policy cannot be used to solve the fiscal problems of euro states. But is more flexibility on interpretation of ECB monetary policy not the price Germany has to pay for completing the euro’s architecture?
A There is a certain room for interpretation regarding the treaties and the mandate of the Eurosystem. But this interpretation must not call into question the monetary union as a stability union. Within these limits I think it’s wise to embrace a tight reading of the mandate so we don’t yield to the temptation of mixing monetary and fiscal policy in a way that endangers central bank independence and our goal of price stability. If a central bank shows once that it is capable of helping countries in a fix, then the chances are high that it will be asked to do so again in the future. It’s important to draw a red line.
Q Can red lines be moved when knowledge of a situation changes or is that an appallingly pragmatic vista for a Bundesbanker?
A Of course, we constantly re-examine our positions as the facts change. For instance, before the crisis we underestimated the risk of contagion in the currency union. The creation of the banking union is one consequence of this lesson learned. But new facts don’t mean you have to throw all your principles overboard. You have to be careful of “this time it’s different” arguments because, for me, some positions in this complex European system are time-tested and should endure. This is the case for the necessity of a clear separation of fiscal and monetary policy. Central banks’ financing of states runs like a red thread through history, and the dangers of this are many and well-known. This is all the more true in a monetary union with one monetary policy and sovereign national fiscal policies.
Q Both euro states and the ECB are doing things now that were unthinkable before the crisis. How does that fit with the Bundesbank philosophy: here I stand, I can do no other?
A I backed many of the crisis measures - the full allotment policy is a good example - but just because there’s a crisis doesn’t mean there are no limits anymore. I share Mario Draghi’s view that there is no way around reforms in crisis countries; rescue packages just bought countries time. The Bundesbank brings a perspective to the debate that is perhaps somewhat conservative and long-term, but the danger of too much short-termism is also a lesson of the crisis.
Q You have warned of late about the long-term negative risks of cheap money on the political appetite for reform. What are they?
A Let us not forget: Europe is coming out of the worst crisis of the post-war years, so I consider an expansive monetary policy to be justified. However, it is also hard to deny that, in the past, politics of cheap money reduced the appetite for structural reforms in countries and fostered excessive risk-taking on financial markets. Thus, while currently defending an expansionary monetary policy stance is appropriate, I am emphasising the importance of not overlooking possible longer-term risks of ultra-low rates.
Q Are you concerned this will contribute to a property bubble in Germany?
A We consider this a phenomenon limited to some urban regions in particular, and don’t see a bubble of systemic concern. Still, we are watching things closely and can’t give the all-clear.