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Social Democrat Nagel will lead the Bundesbank in a delicate period of high inflation. He is known for his conservative stances in monetary policy. But now, what will be his line, asks Auron Dodi.
Joachim Nagel, the new president of the Bundesbank, the German Central Bank is a president of the continuation of the current line of the Bundesbank. This line attaches importance to financial stability and is against the deepening of inflation. With 55-year-old Nagel, no radical change in the policy of the German Central Bank is expected.
Nagel is regarded as an expert with in-depth knowledge of the functioning of the Bundesbank and finance in Europe. He made his main career in the Bundesbank, where he worked from 1999 to 2016.
He then transferred 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 a 19-member board of representatives of the eurozone countries, Nagel will defend Germany’s position in European Central Bank policy.
Nagel’s appointment as president of the Central Bank of Europe’s largest economy has attracted international attention. Analysts categorize the new President at the moment in the group of “hawks”, ie those who advocate a strict financial policy in the Eurozone. There are few public statements by Joachim Nagel. But his 2012 statement, when he criticized the massive purchase of bonds by the European Central Bank, draws attention.
Like his predecessor at the helm of the Bundesbank, Jens Weidmann, Nagel also saw an oversupply by the European Central Bank, which by statute must take care of the stability of the Euro currency.
On this occasion Joachim Nageli said that “the clear division of tasks between fiscal and monetary policy should not be shaken.” This is the German financial tradition, while the American tradition calls the separation of fiscal policy from monetary policy artificial.
Gentle and diplomatic style towards Europe
Despite this, a softer and more diplomatic style is expected in Europe with Nagel. It considers possible a more tolerant financial policy, in support of investments for the green European agenda. Analysts believe he could 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 label the current president of the Bundesbank, Jens Weidmann, as unfair and absolute as a “mystery-no”. This singled out Weidmann and made it impossible for him to show solidarity with non-South European members of the European Central Bank board.
Nagel 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 nominate him as the compromise candidate in Germany.
Will Nagel show dexterity at the helm of the Bundesbank?
Views on a strict fiscal policy made Nagel acceptable even to the more conservative attitudes of the FDP liberals, members of the current governing coalition. 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 stability-oriented monetary policy is growing. He is an experienced personality who ensures continuity in the Bundesbank. “
The other candidate to run the Bundesbank, Isabel Schnabel, who is known for more liberal attitudes e.g. to 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 succession, suggests that at the moment Germany is reacting to these changes with the previous line of strict financial policy.
Even Chancellor Scholz was chosen by the Germans as Chancellor Merkel’s successor candidate. But observers recognize Scholz’s strong pragmatic sense. It remains to be seen whether Joachim Nageli will demonstrate the same sense, advancing the Bundesbank tradition./DW
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