Axel Weber Moves Markets to Confusion With Hints of Exiting His Bundesbank
Axel Weber may be heading toward the exit of the Bundesbank on the same unconventional path he’s treaded throughout seven years as a central banker.
The 53-year old German, who once argued “it’s not so important” for a central banker to be a diplomat, sowed confusion among investors for a second day yesterday by declining to clarify whether he’s quitting and no longer a candidate to run the European Central Bank.
The disarray meshes with the unorthodox and outspoken approach Weber took to the presidency of the Bundesbank and which harmed his chances of succeeding Jean-Claude Trichet at the ECB. Where Trichet is smooth, Weber’s public objections to buying bonds and cutting interest rates suggested he placed the primacy of his own views on beating inflation and maintaining central bank independence above the need to appease politicians or strike a consensus with colleagues.
“It’s like he’s wanting to prove he’s not the right person,” said Christoph Kind, head of asset allocation at Frankfurt Trust, which manages about 16 billion euros ($22 billion). “The way he’s communicated about whether he does or doesn’t want the job shows me he’s lacking the feeling for the public and politicians that the ECB job needs.”
Weber yesterday canceled an appearance today with French officials. He will instead meet with German Chancellor Angela Merkel in Berlin, 48 hours after an associate of his said he planned to depart the Bundesbank in a decision that would rule him out of replacing Trichet, who steps down in eight months.
After speaking with Merkel by telephone yesterday, Weber said in Vienna he “would not comment before we were able to meet for another talk” and that they “will coordinate in taking all necessary decisions.”
The euro trimmed gains and German 10-year bonds pared declines when Reuters reported that Weber would drop out of the race to succeed Trichet on Feb. 9. The currency fell 0.8 percent against the dollar yesterday to $1.3617 as of 7 p.m. in London, while bunds closed with a yield of 3.30 percent.
“This is true chaos,” said Holger Sandte, chief European economist at WestLB AG in Dusseldorf. “He would have been a good candidate.”
If the onetime marathon runner does resign it will end a policy-making career that began in 2004 when Weber was the surprise choice to replace Ernst Welteke atop the central bank of Europe’s largest economy following two decades in academia.
A graduate of the University of Constance, where he sported shoulder-length hair and supplemented his income in holidays as a roofer, he ruffled feathers early on in his tenure by seizing control of the Bundesbank’s economics division.
It was a sign of things to come. He most recently isolated himself on the ECB’s now 23-member Governing Council with calls for the bank to stop the bond purchases that are a key plank in Europe’s battle against its debt crisis. Having openly opposed the May decision within hours of it being taken, he said Oct. 13 there was “no evidence” the purchases were reducing bond yields. Trichet dismissed Weber’s view five days later, saying they didn’t reflect the consensus of the council.
It wasn’t the first time Weber swam against the current. Even as the economy slumped in 2009 he tried to stop the central bank from buying covered bonds to ease credit and was unheeded after he warned against allowing the euro-area’s benchmark interest rate to fall below 2 percent. It was cut to a record low of 1 percent that May and held there since.
Weber also broke the protocol that the ECB president makes major announcements first. In November 2009 he landed on Trichet’s so-called black list by publicly revealing that the ECB would tighten its lending to banks.
To Julian Callow, chief European economist at Barclays Capital in London, such actions were at odds with the need for an ECB president to unite fellow central bankers and to secure the support of leaders who will pick Trichet’s successor.
“Weber’s past behavior has not been consistent with someone who wants to keep his nose clean and be the candidate,” said Callow, a former Bank of England official. “This week’s incidents make it hard to see he’s still a candidate.”
Friedrich Thelen, founder of Thelen-Consult, a Berlin-based business advisory group, said Weber may have wanted Europe’s top monetary policy role only to fall victim to euro-area politics, with French President Nicolas Sarkozy likely wanting Germany to commit to looser economic policies before he backed its candidate.
“This wasn’t on the cards for Merkel,” Thelen said. Now, Weber is “throwing in the towel in anger over the promises Merkel had made to him.”
While he lacked Trichet’s lobbying skills and deft touch with governments, Weber’s advocacy of low inflation, fiscal prudence and central bank independence were in keeping with his status as Bundesbank chief. Created in 1957, the institution had the prime responsibility of safeguarding the deutsche mark as the bedrock of Germany’s post-World War II recovery and preventing the runaway inflation that gripped the nation in the early 1920s.
Weber defended himself against critics on Oct. 25 by saying that he always followed “his own path and that has always served me well.” In an August interview with Bloomberg News he said “it’s important to be a diplomat for the diplomatic corps, it’s not so important for a central bank.”
“He has spoken out about things that are of concern to him,” said Stefan Gerlach, a professor for monetary economics at Frankfurt’s Goethe University. “He’s always been transparent. He’s just honest.”
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