The sadness of Karl Otto Pohl's legacy.

• Author: Engelen, Klaus C.

"We now have the ECB francaise."

With the largest ever bond-buying program by the European Central Bank looming, Bundesbankers were in an apprehensive mood when they gathered on January 13 for a commemorative ceremony to mark the passing of the Bundesbank's former President Karl Otto Pohl.

Pohl, who for decades served as a member of TIE's editorial advisory board, passed away December 9, 2014, at the age of eighty-five.

For those present who are or were important to the institution, the huge quantitative easing program, pushed by the ECB's President Mario Draghi on shaky legal and economic grounds, is feared to be the Bundesbank's most damaging setback since the start of monetary union. In the long battle to block massive bond purchases from debtladen eurozone member states, the Bundesbank under its President Jens Weidmann is being forced to take part in the largest money printing experiment post-war Europe has experienced. No wonder one of Weidmann's predecessors, Helmut Schlesinger, confessed in a recent interview that quantitative easing reminds him of "war financing."

Jens Weidmann has often drawn attention to the fact that the ECB's unconventional monetary measures have huge effects in shifting risks and burdens towards member countries and their taxpayers, including Germany. For the Bundesbankers, European monetary union means that the fortunes of German savers and taxpayers have been taken hostage to lower the debt service costs of southern member states and to bail out their banks. The ECB will become the largest creditor of eurozone member countries, thus lessening pressure on governments for fiscal consolidation and economic reforms.

Adding insult to injury, Germany's politicians--led by Chancellor Angela Merkel and Finance Minister Wolfgang Schauble--seem to have been looking the other way or else hiding behind the assertion that the (highly politicized) ECB is independent in its "monetary" decisions. In reality, the Merkel coalition government lets the ECB do a large part of the eurozone rescue work while keeping quiet about the fiscal support for fear of getting in trouble with the voters.

Former Bank of Italy chief "Super Mario" is succeeding in using the Club Med debtor majority to remodel the ECB into what some call "a eurozone wealth-of-nations redistribution mechanism," giving not only Bundesbankers a sinking feeling. The Bundesbank under Weidmann is increasingly isolated in its struggle to keep the ECB within its monetary mandate. This hurts, but is seen as a challenge to close the ranks with increased resolve to stick to the economic and legal foundations of European monetary union.

Since most remember the years when Pohl--at the levers of political power in Bonn and as vice president and president of the Bundesbank--was dealing with the monetary turbulence and challenges of the 1970s and 1980s, some nagging questions were in the air at his memorial ceremony. How could a central bank that was able to use its dominant position as monetary anchor on the European and global stages to protect the fortunes of the nation's economy be rendered so powerless now?

The answer is obvious: The Deutsche Bundesbank was once the cornerstone of European monetary stability, but was used as a bargaining chip for politicians negotiating ever-deeper European integration. "Even the ghosts of Germany's Auschwitz past have been used to intimidate, demean, and sometimes even terrorize those who oppose the dismantling of the Bundesbank and the replacement of the deutschmark with 'political money'," this Buba-watcher wrote in TIE in 1997.

SON OF A CIVIL SERVANT

Karl Otto Pohl was born in Hanover as the son of a civil servant a few days after the October 1929 stock market crash.

Having joined the Social Democratic Party as a student of economics at Georg-August-Universitat in Gottingen, Pohl broadened his background as researcher at the IFO Institute for Economic Research in Munich. At the Association of German Banks, he became an insider of Germany's financial sector. As journalist at the weeklies Wirtschaftswoche and Zeit he become known in the economic policy battles of the time. Pohl emerged as a leading economic policy brain in the SPD.

Before becoming a leading central banker, Pohl played a key political role as economic adviser and from 1972-1977 as Permanent Secretary in the German Ministry of Finance in Bonn. The Social Democrats came into power with Willy Brandt as chancellor in 1969, followed by Helmut Schmidt in 1974, who governed in a coalition with the Free Democrats until the fall of 1982.

Pohl was nominated by Chancellor Schmidt as vice president of the Bundesbank beginning 1977, and served as president from 1980 to 1991. Pohl stepped down early in a dispute with Chancellor Helmut Kohl about the timing and the terms of German monetary union. He then started his "third career" as a private banker, becoming partner and later head (1993-1998) of Cologne's Sal. Oppenheim bank, a venerable finance house established in 1789. In the private sector, Pohl served on advisory boards of such companies as Royal Dutch Shell, Unilever, Rolls-Royce, Volkswagen, and the private equity firm the Carlyle Group. About a decade after Pohl had left Sal. Oppenheim, the bank ran into trouble and was taken over by Deutsche Bank in 2009.

SAYING FAREWELL TO KARL OTTO POHL

"Today we mourn the passing of an outstanding figure in the world of central banking who was instrumental in paving the way for European monetary union. He was not only a profound man but a man of considerable humor as well," said Bundesbank President Weidmann before a gathering of around 150 invited guests. "Karl Otto Pohl possessed the ability to think simultaneously in political and economic terms and to express himself."

Weidmann recalled Pohl's opposition to German monetary union because he considered this step premature and the exchange rate economically not justified. This dispute with the Kohl government on the terms and timing to introduce the deutsche mark to East Germany led to Pohl not serving out his full term.

And Weidmann reminded those present that "Karl Otto Pohl was also initially skeptical about another project: that of European monetary union, for which he was among the founders as key negotiator in the Delors Committee."

Continued Weidmann: "At the same time, however, he was keen to ensure that this project was not solely left up to others." Thanks to his deeply held stability-oriented stance, Pohl succeeded in convincing his fellow members of the Delors Committee of the need for an independent central bank committed to price stability and able to make decisions as the guarantor of a functioning monetary union. The Bundesbank's independent status was subsequently used as the model for the European Central Bank, later described by Pohl as his greatest achievement.

Former Bundesbank President Schlesinger recalled the "new touch" that Pohl brought to the Bundesbank's external presence during his tenure. As a one-time journalist, Pohl had realized that the Bundesbank needed to move away from what could be seen as schoolmasterly lecturing to adopt a more accommodative approach when presenting its arguments to other countries.

The Bundesbank also invited historian and Welt columnist Michael Sturmer to speak. He put Pohl on a pedestal as "Banker der Republic," and as a "trustee of the nation," who in times of global upheaval wrote himself into the German history books, and over time came to personify the German nation's faith in its national currency, and increasingly in the euro as well.

In Sturmer's view, Pohl saw many problems that are still vexing us today. He sounded the alarm early on the...