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Analysis

A pivotal figure on the monetary stage

by David Marsh

A pivotal figure on the monetary stage

Karl Otto Pöhl, who died on 9 December aged 85, was the most prescient, erudite, eclectic, international and impatient president of an institution that, more than any other, shaped post-war Germany.

For a dozen action-packed years, between 1980 and 1991, he headed the Deutsche Bundesbank, the central bank that presided over the D-Mark and now, 15 years after the birth of monetary union, is leading a rearguard action to preserve its legacy.

Born into poverty in 1929, just four months before the man who became his nemesis during the 1980s, Chancellor Helmut Kohl, Pöhl strode to prominence on the monetary scene in the febrile atmosphere of Bonn, the provisional capital of a provisional state: pre-unification West Germany.

Up to his resignation in 1991, for complex personal and political reasons including disagreement with Kohl over the financial tactics of German unification and preparations for economic and monetary union, he spent 20 years at the helm of global finance. Pöhl, nearly always ready for opinionated discussion and sometimes waspish dialogue, was celebrated for plain speaking but was ultimately impaled politically by inability to cut deals with Germany’s elected rulers.

A one-time sportswriter and economic journalist, he became a pivotal figure on the international monetary stage in his 40s as an adviser to Helmut Schmidt, finance minister and then chancellor. This continued after the took over at the Bundesbank in 1980.

Although unknown to the wider public, no other contemporary official played such an important behind-the-scenes role in economic brinkmanship with successive British prime ministers. Margaret Thatcher, famously, admired him more than any other German alive or dead. He participated, somewhat reluctantly, in preparations for EMU in the 1988-89 committee under European Commission president Jacques Delors, with whom he had an antipathetic relationship. Pöhl forecast, ominously, in June 1989, considerable resistance’ from the German people once they understood that monetary union ‘centres on their money.’

Pöhl provides a prime example of the ‘Becket effect’, named after English King Henry II’s chancellor Thomas à Becket, who opposed the King after he was appointed, and was murdered for his pains. Outsiders brought into the Bundesbank end up far more wedded than expected to stubborn-minded independence.

As a member of the Social Democratic Party, Pöhl was flattered when Christian Democrat Kohl reappointed him for a second eight-year term from January 1988. But Pöhl was irritated when Kohl telephoned him in December 1987 to encourage him to cut interest rates, part of an international stimulus plan that Pöhl later regretted as helping stoke economic overheating.

Earlier, he had lost Schmidt’s favour over higher interest rates in 1980-81. Pöhl finished with the hard-worn distinction of falling out with the two German chancellors who appointed him – a bittersweet badge of central banking honour.

His quick wit, rapport with journalists, and readiness to forge personal contacts with financial leaders ranging from Paul Volcker of the US Treasury and Federal Reserve and Robin LeighPemberton of the Bank of England to Dutchman Wim Duisenberg and Frenchman Jacques de Larosière gave him cult-like status abroad – but at the cost of diminishing political support at home.

He attained a reputation for not suffering fools gladly. An otherworldliness that could border on recklessness ultimately led to his departure from a central bank over which he presided with relish and esteem but which he never truly regarded as his home. After the Bundesbank he built up considerable commercial expertise heading the German private bank Oppenheim before – in the aftermath of his own retirement – he became himself a victim of the managing partners’ own mismanagement when the bank fell upon hard times, and folded in the early years of the new millennium.

One of the reasons why Pöhl sought to escape the Bundesbank’s shackles was his aversion to being bound by the voting power of the querulous provincial central bank presidents on the Bundesbank’s policy-making council.

In a curious reworking of history, Mario Draghi, presiding 30 years later over the European Central Bank in Frankfurt, is facing similar opposition to his policies from the ECB’s decision-making council. This time the resistance is led by none other but Pöhl’s eventual successor, another former chancellors adviser-turned-central bank governor, the Bundesbank’s chief Jens Weidmann – with results that could lead to more convulsions down the road.

 

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