Dissent at top levels of ECB even among former allies


Even the Germans can’t agree that solving the euro zone crisis requires sticking to the rules

WHEN MARIO Draghi goes before the press today, two forty-something German men will slip unnoticed out of the European Central Bank tower: Jörg Asmussen and Jens Weidmann.

After two years wading through a swamp of currency risk and moral hazard, these two men – once political allies in Berlin – represent competing routes to solid ground. Asmussen sits on the ECB board and, like his boss, presents sovereign bond-buying as a necessary evil, a justifiable contribution by the euro’s guardian to calm choppy waters.

Weidmann, as president of the Bundesbank and ECB governing council member, argues that a permanent policy of bond-buying will undermine the bank’s political independence. For short-term gain, he warns, the ECB is betraying the inflation- fighting, price stability mandate that is the backbone of the euro, like the Deutschemark before it.

Born just 18 months apart, both men studied economics at the University of Bonn.

Weidmann and Asmussen moved to Berlin and rose to prominence as euro crisis go-to men for Angela Merkel and Wolfgang Schaüble respectively.

While their bosses slept, they worked the crisis night shift in Brussels with Weidmann watching the political elements and Asmussen steering technical and monetary measures.

“They were constantly calling and updating each other,” says one official who observed them at close quarters.

It was a close collaboration despite different personalities. The 46-year-old Asmussen is a direct, some would say acerbic, northern German, a card-carrying Social Democrat and reportedly a fan of world music.

The soft-spoken Jens Weidmann (44) who was raised in the conservative climes of southern Germany, favours gardening and gourmet cooking.

After earning their crisis stripes together, they found themselves parachuted into Frankfurt within months of each other.

Weidmann became the Bundesbank’s youngest-ever president while Asmussen joined the ECB. Both were crisis appointments after surprise resignations: Weidmann took over from his university mentor, Axel Weber; Asmussen was Germany’s replacement at the ECB for economist Jürgen Stark.

Both Weber and Stark had thrown in the towel, claiming the ECB had betrayed its Bundesbank blueprint with a limited bond-buying programme that crossed the forbidden line into monetary financing.

Some 18 months later, Weidmann and Asmussen are in a similar position. Unlike their predecessors, they disagree on whether the euro zone needs a dose of dogmatism or of pragmatism.

“Weidmann is an independent central banker, an economist who knows the Bundesbank tradition of price stability, its origins in Germany’s economic history – which leads him to act as he is doing,” said Prof Manfred Neumann of the University of Bonn and supervisor of Weidmann’s doctoral thesis on European monetary policy.

“For him the question is if we want a euro as stable as the Deutschemark was or will we accept a softer currency? What is clear is that a policy of permanent bond-buying marks a u-turn by the ECB towards state financing.”

Weidmann argues that the roots of the crisis lie in countries flouting the single currency’s rule book. Bond-buying, breaching further rules, won’t make things right.

Weidmann’s arguments chime with a large swathe of public opinion here, but cannot count on much support on the ECB board.

And what of Berlin? Chancellor Merkel has not quite cut loose her former economic adviser: last week she said it was “important” for Weidmann’s views to be heard in the debate.

But it was faint praise compared to her warm words for Draghi’s promise, backed by Asmussen, to do “whatever it takes” to prop up the euro zone.

“Ahead of next year’s general election, Merkel has no political interest in the euro zone crisis escalating further or in an even higher fiscal risk for her voters,” said Dr Jens Boysen-Hogrefe, macroeconomic policy analyst at Kiel’s IfW economic institute.

Ahead of today’s ECB meeting Germany is a country divided between Weidmann’s long-term warning and Asmussen’s short-term argument.

“ECB intervention is justified if you share the short-term fear of a euro zone break-up and it is not if you are more worried about the long-term dangers of inflation,” said Hogrefe, “particularly the worry that ECB intervention eases reform pressure on Italy and Spain and we’ll have a repeat of Greece.”

Last month Draghi threw down the gauntlet to Weidmann on bond-buying, breaking with ECB tradition by naming him as the primary boardroom holdout. Asmussen was on holidays for that meeting.

Today he meets his former political ally in the ECB boardroom for a final argument.

In the high stakes euro zone crisis, does the solution lie in sticking to the rule book regardless? Or in adapting the rules to master a new and dangerous present situation with uncertain consequences for the future?