After a most successful 50 years, at the prime of life, the Bundesbank ceased to be the dominant central bank in Europe. This would justify a highly laudatory obituary, but perhaps not in itself a full-day workshop in Amsterdam. That took place because we are taught that the Bundesbank’s demise will immediately be followed by its resurrection. Or rather, its spirit will enter a new body, one even better than the old, and will descend on eleven countries instead of one. Far be it from me to challenge that faith. I fully agree: this is how it should be! But will it? In order to be able to answer that question, we are about to look at the lessons that 50 years of the Bundesbank can teach us. And we should go into the question of why it is that the Bundesbank was accepted by the other countries as the model for the ECB.
The essence of the model, of course, is the legal obligation to pursue price stability as the primary objective, combined with independence from political instructions. Yet, I am not sure that this is what I should stress, if asked to indicate the single most important factor that ensures the Bundesbank’s relative success in maintaining price stability. Rather, I should stress the extent of acceptance, on the part of the public and therefore of politicians, of price stability as the primary objective of monetary policy. Without that consensus, I am not sure that the Bundesbank model would have worked as it did in Germany.
Even the most successful central bankers are not born that way. And that also applies to their institution. The Bundesbank had to earn its credibility, earn its success, and earn its independence. The clash with Adenauer over interest rates comes to mind in this connection. Less often mentioned, but perhaps not less important, though less well understood, was the clash with Helmut Schmidt over the European Monetary System (EMS). In 1978, President Giscard d’Estaing of France and Chancellor Schmidt agreed that France would resume participation in a European exchange rate arrangement, after having felt compelled to suspend its participation twice due to lack of convergence. In order to avoid a third failure, Giscard insisted that the new mechanism should be fundamentally different from the earlier one. The burden of adjustment should be shared more ‘symmetrically’ in the