Bundesbank loses lustre in Sarrazin affair
Furore over racist remarks may ensnare even Weber
by David Marsh
Mon 6 Sep 2010
Will no one rid me of this turbulent priest?
As the staid corridors of the German Bundesbank echoed last week to recriminations over allegedly racist remarks by its board member Thilo Sarrazin, the question put 800 years ago by English King Henry II must have been ringing in the ears of Axel Weber, the Bundesbank president. Weber is on the ropes over his failure to eject the querulent Sarrazin, who has stirred controversy by saying Jews shared "a certain gene" and Muslims were unwilling to fit into German society. An affair over the ruminations of an obscure German functionary is causing considerable complications for the running of economic and monetary union and has called into question Weber's credentials as a potential future president of the European Central Bank.
Henry II called down royal wrath on the head of his former chancellor, Thomas à Becket, who had been a strong supporter of the king until he was made archbishop of Canterbury. In central banking literature the term 'Becket effect' is frequently applied to the well-known phenomenon under which previously staunch supporters of prime ministers and presidents become stubborn-mindedly independent when they become heads of central banks. In the 12th century, Becket paid for his insubordination by being murdered by the King's knights -- a fate that has not yet befallen modern-day heads of central banks.
The Bundesbank has asked Christian Wulff, the German federal president, to dismiss Sarrazin in an effort to draw a line under the episode. Pressure for action by the statutorily independent Bundesbank, the most important monetary authority behind the ECB, has risen since Chancellor Angela Merkel urged the central bank to discuss Sarrazin's statements, made during the launch of a book on immigration. The central bank has been trying behind the scenes for months to dislodge Sarrazin and said last week he had broken its code of ethics and public trust by "damaging the image of the Bundesbank."
The Bundesbank broadside is not without risks.
Bundesbankers are difficult to remove because the Bundesbank, in reaction to previous excesses during the Weimar Republic and Third Reich, has built up a privileged place in German society above the cut-and-thrust of politics. Successive Bundesbank leaders have earned their independence by confining it to matters of money -- a legacy that has since passed to the ECB.
In bizarre fashion, Sarrazin has risked squandering that inheritance by misusing his protected position in an issue that has nothing to do with his job. Sarrazin is unlikely to go quietly or quickly. And, given the Bundesbank's independence, some legal experts say his failings were insufficient to justify sacking him. A protracted legal wrangle over a potential suit for wrongful dismissal could hold the Bundesbank in an unwelcome spotlight for several months.
It is sometimes forgotten that the takeover of the top job at the ECB by Jean-Claude Trichet, the present incumbent, was held up for months in 2002-03 by a long legal fight over whether he had been partly responsible for large losses at the state-owned French bank Crédit Lyonnais -- an episode that added to the teething problems of the European single currency. Trichet, who retires at the end of October 2011, said at last week's ECB monthly press conference that he had been "appalled" by Sarrazin's remarks but added he had "full confidence in the board of the Bundesbank" - and thus with Weber -- to deal with the problem.
Sarrazin, a former finance minister from hard-up city-state of Berlin, is well-known for his petulant, devil-may-care nature. He joined the Bundesbank in May last year under a clause in the Bundesbank Law that allows the federal states to choose the central bank's senior officials on the basis of political utility rather than competence. Sarrazin has gone from being an enfant terrible to a bugbear.
Before it handed over to the ECB its powers as Europe's seminal central bank, the Bundesbank used to be respected and feared in equal measure. Sarrazin has now single-handedly made Germany's most august post-war institution into an object of derision mixed with sympathy at home and abroad.
The Sarrazin affair demonstrates the need to reform the Bundesbank Law to put nominations to the bank's board in the hands of the government rather than the federal states, so that qualified officials rather than publicity-seeking showmen are selected for a job that still commands a great deal of authority.
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