Jens Weidmann, president of Germany’s Bundesbank, reportedly threatened to resign over the issue of bond purchases by the European Central Bank (ECB), according to a German tabloid, and the Bundesbank refused to comment on the possibility.
That ups the pressure on ECB President Mario Draghi, who canceled a planned trip to Jackson Hole’s economic symposium to lobby for the plan and rebutted previous comments by Weidmann in which he compared financing by the central bank to drug addiction.
Bloomberg reported Friday that, according to the tabloid newspaper Bild, Weidmann had considered resigning his position and stepping down from the Bundesbank’s board over the plan advanced by Draghi for the ECB to purchase sovereign bonds to help Spain and Italy.
The Bundesbank chief is the only member of the ECB’s board to oppose the plan, but the paper said that he has decided to remain at the helm of the German central bank to continue his protest at a meeting set for next week. Citing unnamed sources, it added that the German government had urged him to stay.
Chancellor Angela Merkel of Germany had said on August 26 that she welcomed his input, avoiding a direct confrontation with him while praising him for continuing “to make demands on policy makers.”
But Draghi had pushed back against Weidmann’s comments earlier in a Der Spiegel interview that “We shouldn’t underestimate the danger that central bank financing can become addictive like a drug. Such policy is too close to state financing via the money press for me.”
Now the ECB president must also find a way to advance his proposed policy without imposing so many conditions that it would basically be useless. Reuters reported that Draghi is being pushed to assuage Weidmann, but the course of doing so is fraught with its own dangers.
Berenberg economist Holger Schmieding said in the report, “Opposition from Weidmann and reservations from some other Council members will mean that ECB bond purchases would be highly conditional, be focused on the short end and would not aim to bring yields down quite as much as Italy and Spain might like to see.” That would be the kiss of death to Draghi’s plan, since it would then fail to reassure markets—which would defeat the purpose.
Should he resign over the issue, Weidmann would hardly be the first from Germany to do so. Axel Weber gave up his position as president of the Bundesbank in April 2011 in part because he opposed the initial round of bond buying by the ECB. And Juergen Stark, a former Bundesbank vice president, left his post as ECB chief economist at the end of last year as a protest over bond purchases, which he said crossed over from monetary to fiscal policy.
However, when asked if he would resign, Weidmann said in the report, “I can best live up to my task when I remain in office. I want to work to ensure that the euro remains as strong as the mark was.”