08:45 24/12/2021
Social Democrat Nagel will lead the Bundesbank through a delicate period of high inflation. He is known for his conservative stance on monetary policy. Now, which line will he follow, asks Auron Dodi.
Joachim Nagel, the new president of the Bundesbank, the German Central Bank, is a continuation of the Bundesbank line. This line emphasizes financial stability and is against deepening inflation. With the 55-year-old Nagel, no radical change is expected in the policy of the German Central Bank.
Nageli is regarded as an expert with deep knowledge of the functioning of the Bundesbank and of finance in Europe. He made his main career precisely at the Bundesbank, where he worked from 1999 to 2016.
He then moved to the German Development Bank (KfW). And finally, from 2020 he worked at the Bank for International Settlements.
As President of the Bundesbank, Joachim Nageli automatically becomes a member of the European Central Bank in Frankfurt, the bank that oversees the Euro. On the board of 19 representatives of the Eurozone countries, Nageli will defend Germany's position in the policy of the European Central Bank.
Nagel's appointment as president of the Central Bank of Europe's largest economy has attracted international attention. Analysts currently categorize the new President in the group of "hawks", that is, those who defend a strict financial policy in the Eurozone. There are few public statements of Joachim Nagel. But a statement of his in 2012, when he criticized the European Central Bank's massive bond buying, draws attention.
Like his predecessor at the head of the Bundesbank, Jens Weidmann, Nageli also saw here a transfer of powers from the European Central Bank, which according to the statute must take care of the stability of the Euro currency.
On this occasion, Joachim Nageli said that "the clear division of duties between fiscal and monetary policy should not be shaken." This is the German financial tradition, while the American tradition calls the separation of fiscal and monetary policy artificial.
Softer and more diplomatic style towards Europe
However, with Nagel, a softer and more diplomatic style is expected in Europe. With it, a more tolerant financial policy is considered possible, in support of investments for the European green agenda. Analysts believe he may be more successful than his predecessor at the European Central Bank in securing better support for Germany's arguments.
The Frankfurter Allgemeine Zeitung wrote this week that the former President of the European Central Bank, the Italian Mario Draghi, with the means of his power managed to unfairly label the former president of the Bundesbank, Jens Weidmann, as "mystery-no". This singled out Weidmann and made it impossible for non-Southern European members of the European Central Bank's board to stand in solidarity with him.
Nageli has supported the social democrats in financial policy since the beginning of his career. In 1995 he worked in Bonn as an advisor to the SPD leadership. This fact made it easier for Chancellor Olaf Scholz to propose him as a compromise candidate in Germany.
Will Nageli show flexibility at the helm of the Bundesbank?
The views on a strict fiscal policy made Nagel acceptable even to the more conservative positions of the liberals of the FDP. FDP chairman Christian Lindner praised Nagel as a stability-oriented economist. Lindner told Nagel that "in the face of inflation risks, the importance of a monetary policy oriented towards stability is increasing. He is an experienced personality who ensures continuity at the Bundesbank.”
The other candidate to lead the Bundesbank, Isabel Schnabel, who is known for more liberal attitudes, e.g. against inflation, in the current political constellation in Germany, there was no chance.
In his resignation, Nagel's predecessor, Jens Weidmann, pointed out that monetary and political decisions after the financial crisis have "massively changed" the world. The choice of Nagel, as a choice of continuity, suggests that for the time being Germany reacts to these changes with the previous line of strict fiscal policy.
Chancellor Scholz was also chosen by the Germans as a candidate to succeed Chancellor Merkel. But observers recognize Scholz's strong pragmatic sense. Whether Joachim Nageli will demonstrate the same sense, advancing the tradition of the Bundesbank, remains to be seen./DW
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