70 Finance & economics The EconomistFebruary 22nd 2020
2 price-stability target, of inflation “close to,
but below 2%”, is asymmetric, reflecting
the Bundesbank’s aversion to inflation. But
the ecbhas come to view its target as sym-
metrical. The Bundesbank has a higher tol-
erance for low inflation. It was nervous
that loose monetary policy could cause in-
flation to snap back. But despite all the eas-
ing it has averaged 1% in the past five years.
Another reason for dissent was the
Bundesbank’s views on the job of a central
bank. It is part of the mainstream German
economic tradition, which frets that mak-
ing borrowing cheaper encourages laxity.
The legitimacy of both Mr Draghi’s promise
in 2012 to buy unlimited bonds of troubled
sovereigns and the ecb’s quantitative-eas-
ing scheme has been questioned in Ger-
man courts. (Mr Weidmann gave evidence
against the former, though he now accepts
a ruling by the European Court of Justice on
its legality.)
As the euro zone’s economy has weak-
ened, the Bundesbank has been deter-
mined that monetary policy not be seen as
the only game in town, and that fiscal poli-
cy shoulders the burden of ginning up the
economy. Mr Weidmann has urged Ger-
many’s government not to “fetishise” its
“black-zero”, or balanced-budget, rule. Do-
veish types, too, want governments to act.
But they would argue that the ecb cannot
afford to engage in a game of chicken with
investors or governments, if the risk is a
downturn or even a crisis.
Being part of a monetary union mayhave allowed the Bundesbank to become
more dogmatic, knowing that the ecbwill
nevertheless act to avoid crisis. Despite its
reputation for being uncompromising be-
fore the euro, it was in fact pragmatic from
time to time, notes Adam Posen of the Pe-
terson Institute for International Econom-
ics. It even briefly conducted asset pur-
chases in the 1970s. Later on, Germany’s
export-oriented growth model allowed its
economy to outperform others in the euro
zone during the sovereign-debt crisis of
2009-15. As Germany fared so well under
the status quo, notes Mr Posen, theBundesbank may have found it easy to op-
pose monetary loosening.
But its intransigence also stems from a
desire to maintain public trust. A survey by
the Bundesbank finds that it is held in
higher esteem in Germany than the ecb
and the federal government. Retaining that
trust, though, is getting harder. The Ger-
man press increasingly paints the ecb’s
negative interest rates as an attack on the
country’s savers. Mr Weidmann supported
the latest round of interest-rate cuts in Sep-
tember, and has defended negative rates in
interviews. But when he has dissented he
has not been above using his press appear-
ances to put pressure on the governing
council. That may have given the public the
impression that ecb policy hurts Germany.
Without change, further rows over poli-
cy loosening seem likely. But the relation-
ship between the two institutions could
well be at a turning point. Ms Lagarde is not
an economist, and is therefore likely to be
less of an influence on the details of policy
than Mr Draghi. She also wants to be more
consultative. That would give Mr Weid-
mann space to air his dissent within the
ecb’s governing council rather than out-
side it. Her review of the ecb’s framework
could clarify its inflation target and align
views on when the bank should act.
And Germany’s appointment of Isabel
Schnabel, a more consensus-minded econ-
omist than Mr Weidmann, to the ecb’s ex-
ecutive board might help the bank commu-
nicate directly with the public. In a speech
on February 11th she tackled common mis-
perceptions around negative interest rates.
A bigger shift at the Bundesbank could
even come through adversity. Germany’s
growth model is looking increasingly
shaky, warns Mr Posen. In 2019 its economy
fared better only than Italy’s in the euro
zone; a repeat performance is expected in- That would give the Bundesbank
something to fight for. 7
Authority figuresSources: Datastream from Refinitiv; Bank of England; Eurostat; Bundesbank; European Commission129630
1970-82 1983-98 1999-2020Average annual consumer prices
% increase on a year earlierEuro areaGermanyUSFranceBritain10007550252018Euro-area GDP share
%Other
Netherlands
Spain
Italy
FranceGermany0 25 50 75Germany, respondents with high and
very high trust in institution, 2019, % polledEuropean CommissionECBEuropean ParliamentFederal GovernmentBundesbankBundestagEuropean Court of JusticeFederal Constitutional Court7550250
1999 2005 10 1915Respondents who “tend to trust” the ECB
% polledSpainItalyFranceGermanyJobs report
Central-bank staff *, ’000Source: Central
Bank Directory*Latest available data †Aggregate of all
Reserve Banks and the Board of GovernorsEuropean Central BankBank of EnglandBank of JapanBanca d’ItaliaBundesbankBanque de FranceReserve Bank of IndiaFederal Reserve†3025201510502000 2020Central bankers around the world have
long pondered the causes of a slowdown
in productivity. Might they be part of the
problem? Many national central banks in
the euro area have shed staff in the two
decades since they ceded many of their
responsibilities to the ecb. Yet they still
look flabby: the central banks of Germany,
France and Italy have many more
employees than the Bank of England,
whose duties have grown over the same
period. In their defence the Europeans
could point to the payroll of America’s
Federal Reserve system. Its Board of
Governors in Washington, dc, where most
responsibility resides, had about 2,800
employees at the last count. But its
network of less important reserve banks
had another 19,500.Labour hoarding