Joachim Nagel: The new president

Joachim Nagel is an understandable choice to succeed Jens Weidmann in the presidency of the Deutsche Bundesbank.

At a time when former government members are increasingly being appointed to the head of formally independent central banks in other countries, he is moving to the top as a man who has worked for many years in leading positions at the Bundesbank and most recently for the Bank for International Settlements - the "Bank of Central Banks" - has been active.

The doctor of economics is well versed in theory and practice with monetary policy;

in addition, he is familiar with the thinking at home in the Bundesbank.

Membership in the SPD does not necessarily contradict political stability convictions in monetary policy, as the memory of the Social Democratic Bundesbank President Karl Otto Pöhl alone shows.

The new Bundesbank President will not have a long training period.

Rather, Nagel takes up his post in a difficult situation.

The latest decision by the European Central Bank to reduce its bond purchases but to forego a fixed date for the suspension of the purchase program has raised doubts about the credibility of this strategy even among economists who are not fundamentally opposed to the ECB.

Growing dependence on governments and financial markets

Germany, the stronghold of this doubt, is likely to see a decline in the inflation rate in the coming months compared to the current high of 5.2 percent.

But according to a current forecast by the Bundesbank, the inflation rate will still reach a good three percent in the coming year.

Whether the rate will then decrease noticeably, as numerous experts currently suspect, is in the stars.

The environment for monetary policy is unlikely to improve in the foreseeable future, given the continuing rise in national debt and immeasurably growing financial markets. The German Princeton economist Markus Brunnermeier has shown in a series of educational papers how central banks, when attempting to act as insurers against severe economic crises, run the risk of growing dependence on governments and financial markets.

Finance ministers of highly indebted countries, like many participants in the capital markets, are interested in continued low interest rates. Nagel will have to oppose attempts by states and large investors to instrumentalize monetary policy in their favor. But the room for maneuver of monetary policy has been reduced compared to the golden era of central bank independence 30 or 40 years ago.

In Germany in particular one can often hear that in view of the majority of Southern European representatives on the Central Bank Council of the ECB, any resistance is pointless.

That is a strange perception, since the southern Europeans do not get a majority in the Council, including France.

Rather, and this may be sobering from a German point of view, the broad majorities with which Mario Draghi previously led the ECB and Christine Lagarde now governs rely on the approval of council members whose homeland is not southern Europe.

The previous President of the Bundesbank, Jens Weidmann, is therefore not going as the informal head of a firmly established Northern European bloc in the Central Bank Council, but as a largely, if not completely isolated, member of the ECB's governing body.

Weidmann deserves respect for his resignation

Draghi had understood it with the adept application of techniques of power to corner the German as supposedly stubborn naysayers (who Weidmann was by no means) and thus to make the solidarity of other members more difficult. Although the tone in the Council changed under Lagarde, the balance of power remained the same. Weidmann resigns because he knows that he has little influence and does not want to represent a monetary policy externally that he rejects internally. Therefore, this resignation deserves respect.

Nagel's chance lies in the fact that he takes Weidmann's seat on the Central Bank Council, but has nothing to do with his past in the relationship between the members of the Council.

The most recent debate in the ECB has shown that behind closed doors, unease about the monetary policy stance is now growing even among members who were previously considered by the public to be absolute supporters of Lagarde.

The majorities in the Council may in future be less firmly established than in the past.

In any case, it is to be hoped that Nagel does not allow himself to be discouraged in advocating a stability-oriented monetary policy.