Three-way battle over Bundesbank job

19 April 2004

BERLIN – German Chancellor Gerhard Schroeder is expected to announce Wednesday the appointment of a new Bundesbank chief following the resignation Friday of Ernest Welteke.

Meanwhile a battle for the top job in the nation’s central bank is taking shape as three leading candidates have emerged.

The 61-year-old Welteke stepped down after it was revealed that a top German commercial bank footed a luxury hotel bill for him and members of his family during New Year celebrations in Berlin, and he attended the Monte Carlo Grand Prix at the expense of carmaker BMW.

Of the three candidates for the Bundesbank vacancy, the government is thought to be favouring either Deputy Finance Minister Caio Koch- Weser, or Deputy Economics Minister Alfred Tacke.

The third candidate, Bundesbank vice-president Juergen Stark, who is at present standing in as the central bank chief, has on the other hand won support from financial markets, as well as the backing of Germany’s conservative opposition.

The cabinet is expected to make a decision on Wednesday.

While the Bundesbank handed over its monetary policy powers to the European Central Bank more than five years ago, the appointment of the new German central bank chief is particularly sensitive as the Bundesbank president sits on the ECB’s key rate-setting governing council.

Welteke’s resignation followed a damaging two-week standoff between the Bundesbank and the government, with Berlin pressing him to stand aside and the central bank insisting that it was up to the bank to decide how to handle the issue.

But the scandal surrounding Welteke’s decision to accept hospitality has also served to highlight the decline in the influence of the Bundesbank, once a model for central bank independence and a symbol of Germany’s post-Second World War financial stability, as well as the strength of the German national currency.

With the Bundesbank having three times the number of staff as the Bank of England, economists believe that the institution’s current imbroglio could also result in increased pressure for reform.

In the meantime, according to Rainer Guntermann, European economist with Dresdner Kleinwort Wasserstein, the risk for the government in selecting the new chief is that the markets might perceive the appointment as political.

This is particular the case with both Koch-Weser and Tacke. Should either one receive the nod from the government on Wednesday, they will be under market pressure to allay fears that their monetary policy stance does not reflect Berlin’s line, said Guntermann.

Indeed, senior government ministers from the Chancellor down have been calling on the ECB to cut rates as a way to shore up Germany’s fragile economy.

Both Koch-Weser and Tacke have been closely involved in the development of the Schroeder government’s economic policy, with Tacke having acted as the Chancellor’s so-called ‘Sherpa’ for meetings of the Group of Seven leading industrial nations.

Koch-Weser, who according to Germany’s Die Welt is known as ‘Cocktail Caio’ due to his penchant for overseas travel, was previously promoted by the Schroeder government to become chief of the International Monetary Fund in 1999. But his candidacy was rejected by Washington.

The problem for the government in opting for either Koch-Weser or Tacke is that neither man has much experience in monetary policy. Koch-Weser might also prove to be an unpopular candidate at the Bundesbank because of concerns over the Finance Ministry’s manoeuvrings to force Wetleke to stand aside.

Stark on the other hand has been at the Bundesbank for about six years and is considered by the financial markets to be a strong monetarist who sees fighting inflation as the top priority.

He was one of the main architects of the Growth and Stability Pact which sets out tough budget targets for euro member states.

But while Schroeder might be able to score points with the markets by appointing Stark, the Bundesbank vice-president had close ties to the main opposition Christian Democrats when they were in government, which analysts believe will in the end rule him out of the race.

Moreover, Stark has been a regular critic of the current administration’s economic policies and has lashed out at moves by euro states, including Germany, to rework the rules of the Growth and Stability Pact.

DPA

Subject: German news