Commentary: It's Time For Tietmeyer To Be A HeroBill Javetski
I sometimes wonder whether Bundesbank President Hans Tietmeyer has nightmares about of his predecessor Karl Otto Pohl. Back in 1990, that brave central banker stood up to Bonn's politicians, arguing that the country couldn't afford to subsidize reunification by giving East Germans an entire Deutschemark for each of their worthless Ostmarks. Chancellor Helmut Kohl insisted on a one-to-one exchange, and Pohl resigned in anger--a martyr, some might say, to monetary prudence.
Tietmeyer faces a similar challenge right now, and it's time he started acting like a hero. Kohl, along with the Continent's other heads of state, is pushing for European Monetary Union. But some of his counterparts are willing to achieve a single currency at any cost. Politicians are so eager to meet next year's deadline for satisfying the fiscal criteria to join the EMU that they are performing all kinds of budgetary hanky-panky. That gimmickry may well come back to haunt them when the new single currency, the Euro, is born wobbly instead of strong. Tietmeyer, as the guardian of not just German but European financial stability, should be fighting back with everything he's got.
DEFENSIVE. German savers need him. In contrast to the reunification of their own country, European monetary union leaves most of them cold. Why should Germans bankroll the less fiscally conservative Spaniards, Italians, and Portuguese who want to meld their currencies with the powerful mark? Around 60% of Germans doubt their savings will be worth as much when denominated in Euros rather than marks. "Monetary union may make sense for Germany's politicians and for German industry, but it's not at all clear that it makes sense for German savers," says Union Bank of Switzerland economist Richard Reid. Nor do the foreign investors who hold some $377 billion in German public debt want to see the mark replaced with a less valuable Euro.
But Tietmeyer is on the defensive lately as Europe's politicians get more aggressive. First, the European Commission steamrolled Germany's central bank by ruling that France could use a one-time $7 billion windfall from France Telecom's upcoming privatization to pump into its budget next year. That way, France will magically get closer to meeting the budget-deficit requirements for becoming an EMU founder.
When Tietmeyer criticized such budgetary hocus-pocus, former German Chancellor Helmut Schmidt blasted Tietmeyer in an open letter in the weekly newspaper Die Zeit, calling him "the biggest obstacle" to EMU. Schmidt's attack will no doubt encourage other governments to find French-style accounting tricks to improve their own budget numbers.
Of course, Tietmeyer is right. One-time discipline to meet fiscal requirements a year from now is only the start of launching a strong Euro in January, 1999. EMU members will have to keep deficits and inflation down in the long term so the new European central bank can manage all Euro-based economies harmoniously. And there's simply no track record of fiscal discipline in such countries as Spain and Italy--or, arguably, even France.
Politicians like to dismiss Tietmeyer's criticisms as the technical talk of a banker. But he is closer to German voters than the politicians are. If German savers don't believe the Euro will be as good as the mark, the government could face upheaval in federal elections in 1998, right on the eve of the Euro's launch. Opposition parties already are staking out turf to campaign against Kohl if he fails to protect German interests in the single-currency negotiations.
Tietmeyer has support. German Finance Ministry official Jurgen Stark on Nov. 11 put European countries on notice that Germany won't tolerate efforts to water down a German-initiated "stability pact" among EMU members to guarantee continued fiscal discipline after the Euro is born.
Hardliners should band together to insist that EMU founding nations respect such safeguards of the Euro's long-term strength. They should hang tough even if it means launching the Euro with fewer countries or postponing its inauguration. If Tietmeyer defends the mark, he will go down in history as the chief architect of a strong Euro. And with the German public backing him on this, he has a far better chance than Pohl to be a hero without being a martyr.