ECB Critic Holds His Tongue as Race Nears for Bank's Top Job

By Tom Fairless Features Dow Jones Newswires

Jens Weidmann, the German central-bank chief who made his name by loudly attacking the European Central Bank's crisis-fighting efforts, has become a quiet defender of the ECB against its German critics.

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The shift has been subtle. Mr. Weidmann still criticizes the bank's radical stimulus measures. But his tone has softened as evidence accumulates that the ECB's policies are working -- and as the race to become the institution's next president approaches.

"There is currently no doubt that an expansionary monetary policy stance is appropriate," Mr. Weidmann said in a speech late last month, while suggesting he might not agree with his colleagues on the details.

Only five years ago, he was boasting of clashes with fellow policy makers, and comparing easy-money policies to drugs and alcohol.

As ECB officials gather Wednesday and Thursday in Estonia, what was once a bitter argument over the bank's far-reaching monetary stimulus is expected instead to be a pragmatic discussion about whether to start reducing it.

Mr. Weidmann declined to be interviewed for this article.

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ECB President Mario Draghi's term ends in 2019. The jockeying to succeed him is likely to begin sometime after Germany's national elections in September. The presidency is determined by a vote of eurozone leaders.

Mr. Weidmann has been carefully non-committal. "I make a point of never taking part in speculation on such issues," he said in an interview last month, responding to whether he might be the next ECB chief.

But German Chancellor Angela Merkel and her finance minister, Wolfgang Schaeuble, are reportedly prepared to push for him, on the basis that no German has led the ECB, which is based in Frankfurt, in its near 20-year history.

Mr. Weidmann has been careful not to alienate his German constituency. While he has cooled his fiery rhetoric, he continues to criticize policies viewed with deep distrust in Germany, such as government-bond purchases.

Despite his unpopularity in some European capitals, Mr. Weidmann would have a strong claim for the top job. Germany is the region's anchor economy, and the ECB was modeled on the Bundesbank. Mr. Weidmann's predecessor, Axel Weber, was widely seen as the front runner before he pulled out of the race, a decision that infuriated Ms. Merkel. Crucially, only a minority of Eurozone governments have required bailouts -- or come close. Many others are sympathetic to at least some German concerns.

With a rapprochement between the ECB and its most important shareholder, the Bundesbank, the bank could stand a better chance of winning acceptance in Germany for some of its policies. And, as the ECB navigates an exit from its stimulus, it would stand a better chance of avoiding a public fight that could confuse investors and rattle financial markets.

Mr. Weidmann's colleagues on the ECB's governing council are relieved about his new approach. Many had grown exasperated, complaining, usually in private, that Mr. Weidmann rejected anti-crisis measures while proposing no alternatives

Still, the Bundesbank chief's newfound amity with the ECB is raising some concerns back home. Germans revere their conservative central bank for cementing the nation's postwar rebound. Much of Germany's political and economic establishment thinks the ECB's ultra-low interest rates punish German savers while taking the pressure off sluggish European economies such as France and Italy to reform.

"I fear that Mr. Weidmann has softened his opposition," said Jörg Krämer, chief economist at Commerzbank in Frankfurt.

Nor is it clear that a mere shift in tone will be enough to win around Mr. Weidmann's critics in southern Europe.

When ECB President Mario Draghi repeatedly complained in public about colleagues saying "Nein zu Allem" -- German for "No to everything" -- it was clear whom he meant. The Italian hasn't made that jibe recently, though.

"Many in southern Europe certainly have strong reservations against Jens Weidmann, that's for sure," says Guntram Wolff, head of Brussels-based think tank Bruegel. Mr. Wolff cited the Bundesbank chief's opposition to bond-buying schemes that propped up struggling euro members during the region's debt crisis.

His "period of quietness" probably has helped to soften objections in southern Europe to his potential candidacy, though it hasn't eliminated them, Mr. Wolff says.

Mr. Weidmann is 49 years old and is a former International Monetary Fund official, He is from the southern German region of Swabia, known for its thrifty housewives that are frequently invoked by Ms. Merkel, to whom Mr. Weidmann served as chief economic adviser. He would be the youngest-ever ECB president.

The last time the ECB presidency was open, Ms. Merkel pushed for Mr. Weber. But Mr. Weber's rift with other ECB members over the question of buying government bonds led to his resignation, and to Mr. Draghi becoming president in 2011.

With his newly restrained tone, Mr. Weidmann appears to have learned from his predecessor's mistakes, which diminished German influence at the ECB.

Under Mr. Draghi, the ECB has become the eurozone's most important crisis-fighter, in defiance of German orthodoxy that says central banks should stick to keeping inflation down. The institution has lent cheaply and freely to eurozone banks, cut interest rates to around zero or in some cases below zero, and bought more than EUR1.5 trillion in government bonds under its quantitative easing program (known as QE).

All of those measures provoked anger in Germany. Many people feared they would lead to inflation and undermine the stability of the euro. Mr. Weidmann led the opposition to Mr. Draghi. He warned in 2012 that, for governments, "central-bank financing can become addictive like a drug."

"It is like an alcoholic saying that I need to get a bottle tonight," Mr. Weidmann said at another point in the crisis as the ECB pondered how to help countries threatened by financial-market panic.

Most economists say events have largely vindicated Mr. Draghi.

The steady improvement in the eurozone's recovery can be traced to the cumulative effect of ECB stimulus measures since 2014, says Greg Fuzesi, economist at J.P. Morgan in London. Eurozone growth outpaced the U.S. in the first quarter and inflation has jumped in recent months from zero to 1.4%, approaching the ECB's target range.

At a town-hall meeting in Karlsruhe, Germany late last year, Mr. Weidmann acknowledged the positive impact of the bank's bond-buying program, the quantitative-easing policy he had repeatedly voted against.

One young woman argued the policy was ineffective, citing a conversation with a banker.

"How do you know that QE has had no effect?" Mr. Weidmann replied. "You shouldn't believe everything bankers say."

Write to Tom Fairless at tom.fairless@wsj.com

(END) Dow Jones Newswires

June 07, 2017 05:44 ET (09:44 GMT)