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Departure of a statesman

Departure of a statesman

Schmidt’s role in the quartet of monetary power

by David Marsh

Wed 11 Nov 2015

Helmut Schmidt, West German chancellor between 1974 and 1982, who died on Tuesday aged 96, carried with him to the end the hallmark and allure of a European statesman. His passing marks the fourth demise in less than a year of a batch of illustrious German and British monetary figures who played exceptional roles in shaping European finance in the 1970s and 1980s.

The talented and often quarrelsome quartet – Schmidt, Denis Healey, Geoffrey Howe and Karl Otto Pöhl – were linked in inextricable fashion. It is probably not an exaggeration to say we will not see again a combination quite like this.

Denis Healey, UK chancellor of the exchequer between 1974 and 1979, who died last month aged 98, was an old friend and sparring partner of Schmidt. Both men were drawn together by their common interest in defence and Atlantic ties as well as finance. They shared a love of music and excoriating memories of service on opposite sides in the second world war.

Pöhl, Bundesbank president in the seminal years 1980 to 1991, who died last December aged 85, was a former right-hand-man and protégé of Schmidt during the latter’s pre-chancellorship days as West German finance minister.

As No 2. in the Bonn finance ministry, Pöhl played an important part in monetary shuttle diplomacy with Healey and James Callaghan, the British prime minister, during fraught negotiations over propping up the pound in the mid-1970s. Pöhl was a key accomplice of Schmidt in helping steer Germany through treacherous international financial shoals after the breakdown of the Bretton Woods system in 1971-73.

Schmidt appointed Pöhl to the Bundesbank in 1977 as vice president, and made him president 2½ years later (even though Pöhl was not the chancellor’s first choice – a slight Pöhl never forgot). As Bundesbank chief presiding over both recession and rising interest rates in the early 1980s, Pöhl played a part in prompting the tougher economic conditions that contributed to Schmidt’s departure from office in 1982.

If Schmidt was Pöhl’s mentor, Healey was Howe’s tormentor; Sir Geoffrey, as he then was, became the first chancellor of the exchequer in Margaret Thatcher’s prime ministerial reign that started in 1979. Thatcher and Schmidt overlapped for three years before Schmidt bowed out, a period in which Schmidt developed both regard for the British prime minister’s imperious negotiating tactics and distaste for Britain’s drift away from Schmidt’s ideals of European integration.

Characterised by a more ponderous debating style than his frequently vituperative predecessor, Howe was often the butt of Healey jibes as the UK economy stuttered into downturn in Thatcher’s initial years. But it was Howe who had the last laugh, remaining close to the helm of a Conservative administration conspicuously more successful than Labour rule had been in the 1970s – even though Howe’s later falling out with Thatcher, and role in her own demise, provided an unedifying denouement.

One of Schmidt’s most significant forays on the monetary stage was in a then-secret speech to the Bundesbank in November 1978 when he pleaded for the German central bank to back his plans for European monetary integration in the form of the European Monetary System – the forerunner of monetary union. Schmidt said Germany would remain ‘vulnerable … until well into the next century’ partly because of the division of the nation (overcome in 1989-90) but also because of the memory of the second world war. ‘The more successful we are in the fields of foreign, economic, social and defence policy, the longer it will take for Auschwitz to fade from the fore of collective consciousness,’ he told the Bundesbank council – a statement that may serve as his epitaph.

David Marsh is managing director of OMFIF.

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