The Bank Strikes Back
Marsh, David, New Statesman (1996)
David Marsh was there when the Bundesbank set about sorting out the politicians
It is not every day you get a chance to lecture the German Bundesbank. On 28 May I was in Frankfurt to give a speech at a ceremony marking the 50th anniversary of the foundation of the Land central bank of the state of Hesse, one of the constituent parts of the German central bank. Ten members of the Bundesbank's 17-man policy-making council Were in the audience. By coincidence, this happened a few hours after the Bundesbank council met to discuss Chancellor Kohl's plan to revalue Germany's gold reserves to meet the Maastricht conditions for monetary union.
With a sense of showmanship unsuspected in an institution reputed for its dourness, the central bank delayed announcing its decision to oppose the Bonn plan until the speech-making ceremony was over. Bundesbank council member Ernst Welteke - the Social Democrat head of the Hesse central bank, and a fan of EMU - read out the statement lambasting the Bonn move as an attack on the bank's independence. He won enthusiastic applause from the audience of 200 dark-suited Frankfurt bankers. As Bundesbank representatives were swamped by TV cameras and reporters, a government climbdown on the gold plan was never in doubt.
The Bundesbank's arduously won reputation for rectitude was upheld. His problems compounded by the Socialist victory in France four days later, Helmut Kohl's EMU locomotive suddenly veered off the rails. The chancellor became the latest government leader to realise that tangling with the Bundesbank can damage your health. In the past few days, the odds on EMU being delayed or abandoned have shortened dramatically.
The ritualistic solemnity of the Bundesbank's gold rebuff was in keeping with the bank's traditions. The central bank was founded in 1948 as a subsidiary of the Land central banks in occupied Germany. Relentless attachment to monetary consistency has played a large part in the bank's accumulation of power and influence.
Several Bundesbank council members are among Kohl's political allies, but there was no mistaking their determination on 28 May to have the better of their spat with him. One leading Bundesbanker spoke of the "dilettantism" of Theo Waigel, Kohl's hapless finance minister, another predicted a government crisis.
Bundesbank president Hans Tietmeyer, a long-standing Kohl confidant, has in the past spoken of resigning if EMU were to go ahead on an unsolid basis. During the past weeks, few have doubted that he would put the threat into effect if the government persisted with the gold plan. Despite Kohl's initial bravado in declaring he would push through the proposals in the teeth of Bundesbank resistance, the government soon collapsed, once it became clear that the German financial community and the media sided with the Bundesbank. After talks with Tietmeyer in Bonn on 3 June, Waigel announced the cave-in.
Almost all the precedents for the German government's tussle are unfavourable for Bonn. Bundesbank insiders say the dispute compares only with a row involving Germany's first postwar chancellor, Konrad Adenauer, in 1950 when he failed to prevent the bank from raising interest rates during the Korean war.
In the dozen or so serious disagreements between central bank and government in postwar Germany, the Bundesbank has virtually always finished on the winning side. Three postwar chancellors - Ludwig Erhard in 1966, Kurt-Georg Kiesinger in 1969 and Helmut Schmidt in 1982 - owe their downfall directly or indirectly to the actions of the Bundesbank.
The one substantial conflict where the central bank finished a loser was over the conversion terms for bringing the D-mark into East Germany in 1990. This was in many ways a technical issue, much less important than EMU.
The Bundesbank was never likely to back down over EMU in the way it did over East-West monetary conversion. German monetary unification was part of the political union of Germany, unreservedly welcomed by most voters. …