Helge Berger and Friedrich Schneider
The German Bundesbank is well known for its successful monetary policy and its high degree of legal independence (Eijffinger and de Haan 1996). But this does not mean that the bank operated in a political vacuum. From the well-known ‘Gürzenich affair’ in the mid-1950s to the quarrels about the bank’s policy after the German reunification or the recent ‘Goldwar’, the Bundesbank has been engaged in policy conflicts (Goodman 1989; Marsh 1992; Berger and de Haan 1999). More often than not, the government accused the Bundesbank of acting ‘too conservative’. It might even be argued that it was exactly its skilled management of these conflicts that helped the German central bank to acquire its reputation of being autonomous (Berger 1997a).
The question addressed in this chapter is whether the Bundesbank did compromise when political pressure was applied. Given the benchmark character of the Bundesbank for the design of monetary institutions in general, and the European Central Bank (ECB) in particular (Escriva and Fagan 1996), the answer to this question is of some importance. Take the example of the ECB. Its legal status is based on the unanimous consent of the members of the monetary union, which makes it very difficult to change its degree of independence (Giovannini 1995; Kenen 1995). Since, in the case of the Bundesbank, the government’s legislative majority could have, in principle, robbed the bank of its independence at any time, de Haan (1997) has argued that the ECB is even more autonomous than the Bundesbank. 1 This conjecture implies that the current ECB structure might not be an equilibrium. Countries that only reluctantly complied with the idea that the new bank would have to have the same degree of independence as the Bundesbank to be able to ‘rule Europe’ will probably not accept an even higher degree of actual autonomy. If this view is correct, the early years of the new institution could be marked by political turmoil and conflicts as countries try to escape the rigidities of the current ECB contract. We can, for instance, imagine the Economic and Monetary Union (EMU) members asking for regional preferences in bank refinancing or for