A new generation Bundesbank?
Is the Bundesbank losing its tradition of stability policy with Jens Weidmann – and is that bad for the Germans? Or is the upcoming change at the top of the Bundesbank an opportunity to reposition the central bank and possibly redefine its tasks in times of climate change and financial globalization? These questions were addressed in our New Economy Short Cut, which we hosted in cooperation with the Transformative Responses initiative on November 29 from 12 to 1 pm.
Berenberg chief economist Holger Schmieding has often defended the European Central Bank’s course against criticism from Bundesbank traditionalists in recent years. Political scientist and central bank expert Benjamin Braun is working academically on the question of what a new generation of central banks would need conceptually in times of ever new financial crises, looming climate shocks and rising wealth inequality – among other things, as part of a call for a new central bank mandate with Transformative Responses. So what would the next head of the Bundesbank, who is likely to be announced in a few days, need?
Holger Schmieding emphasized that the Bundesbank has earned a high level of trust among the German population through its stability-oriented policy. He therefore does not recommend a fundamental change of course, but rather a shift in emphasis in its tasks and a stronger focus on topics such as climate change and financial stability. He pointed out that the Bundesbank, which has established itself at the EU level as an advocate of price stability, also deviated from its “pure doctrine” through its actions in the past.
According to Schmieding, the Bundesbank should be headed by a person who is able to, on the one hand, ensure a continuation of German stability culture and, on the other hand, defend the ECB’s role as a “lender of last resort” that ensures the stability of the financial markets. In this context, it is essential that the Bundesbank better communicates the ECB strategy to the German public.
Benjamin Braun expressed the view that the Bank should “rebalance” after Weidmann, away from “ironclad monetary stability policy” towards a growth model that takes social and ecological sustainability into account. He showed that monetary policy in Germany has tended to rely on an export-oriented growth model supported by low labour costs, which has led to a continuously increasing foreign trade surplus since the introduction of the euro. Due to the enormous expenditure requirements for the decarbonisation of the economy, it is now appropriate for politicians to rethink monetary policy priorities.
On the question of central bank independence, Holger Schmieding highlighted the differences between the Bank of England and the Bundesbank. Benjamin Braun added that many central banks had followed the Bundesbank model. The delegation of political power to independent central banks was supposed to counteract the time inconsistency problem of political decision-makers, who tend to be too oriented towards short-term goals. However, since the financial crisis, the tasks for central banks have increased worldwide, for example in the area of financial market supervision and regulation. Stronger parliamentary review mechanisms would therefore be important for better legitimacy. In his view, existing fora, such as the monetary dialogue in the EU Parliament, are rather “toothless” compared to their US counterparts.