Cultural Change At the Bundesbank: The new Nagel era begins.

• Author: Engelen, Klaus C.

Some ten weeks after the German Bundestag elections, a traffic light coalition of Social Democrats, Greens, and Free Democrats took office on December 8, 2021. Olaf Scholz, who served in the previous coalition government as finance minister, was elected chancellor. With his Merkel-like low-key election campaign, Scholz turned out to be the surprise winner of the 2021 election. Thus ended the four-term sixteen-year chancellorship of Angela Merkel. Now a set of new politicians are in charge.

The new year also brought another unexpected leadership change, this one at the Bundesbank. As the traffic-light coalition was negotiating a coalition agreement in a spirit of organizing a new beginning for Germany, meeting the challenges of climate change, holding the European Union together, and coping with mounting geopolitical risks, a bombshell came from Frankfurt. On October 20 of last year, Jens Weidmann, for many Germans the only guardian against the erosion of their savings left at the European Central Bank, announced that he had asked German President Frank-Walter Steinmeier to dismiss him from office "for personal reasons" at the end of the year.

In a letter to the Bank's staff, Weidmann stated, "I have come to the conclusion that more than ten years is a good measure of time to turn over a new leaf--for the Bundesbank, but also for me personally." Weidmann expressed a diplomatic but clear warning as his legacy: "A stability-oriented monetary policy will only be possible in the long run if the regulatory framework of the Monetary Union continues to ensure the unity of action and liability, [and] monetary policy respects its narrow mandate and does not get caught in the wake of fiscal policy or the financial markets."

The large contingent of adamant critics of the ECB's ultra-easy monetary policy, featuring endless bond purchases even in a time of record inflation, consider Weidmann's early departure as the final protest of an inflation fighter after years of frustration. According to Europe's Eurostat statistical office, in December 2021 inflation in the European Union--pushed by ever-higher energy prices--reached 5 percent, the highest level since record-keeping began in 1997.

"For personal reasons" sounds familiar. Weidmann's early departure is reminiscent of similar events at the Bundesbank and the ECB. In February 2011, Weidmann's predecessor, Axel Weber, announced that he would leave his post early "for personal reasons." At the time, Weber was in the race with his Italian colleague Mario Draghi to succeed Jean-Claude Trichet as president of the ECB. It seemed to be the moment for Germany, by far the largest EU country, to be trusted with the ECB presidency. But since Weber had spoken out publicly against the ECB's crisis-driven buying of euro bonds to calm financial markets, his candidacy failed due to the strong opposition from the Club Med governments. They wanted the ECB to continue to purchase as many of their government bonds as possible--especially in favor of the Club Med states under French leadership--in order to lower their public financing costs. After leaving the Bundesbank, Weber became chairman of the UBS supervisory board, a key position in international banking.

In September of the same year, there was another...