Jens Weidmann knew what would happen, but he had to make the joke anyway. He owed it to himself and to his new position as head of the Bundesbank, Germany's central bank.
"Did you leave so much space between us on purpose?" he asked German Finance Minister Wolfgang Schäuble with a cheeky grin. Indeed, the podium that had been set up for their joint press conference on Friday in Washington really did have generous dimensions, leaving enough space for two or three people between them.
Schäuble examined the distance between them. Then he answered, with a pained smile: "We did that because of your independence."
One of Merkel's Fiercest Adversaries
Germany is marveling at a breathtaking shake-up of political roles. For five years, Weidmann served as an economic adviser to Chancellor Angela Merkel. During that period, he was loyal to her, even seeming too keen at times. But now, in his new role as president of the Bundesbank, he has become one of her fiercest adversaries.
Weidmann has criticized decisions related to the euro bailout as "inconsistent" and "highly risky." He has called on politicians in Berlin to change their course, and he has been advocating "the Bundesbank's principles regarding stability." All of those things put him at odds with top officials at the European Central Bank (ECB).
Behind the glass facade of ECB headquarters in Frankfurt, a fierce battle over fundamental beliefs has been smoldering for months. ECB President Jean-Claude Trichet and the majority of his colleagues are willing to rush to the aid of embattled EU finance ministers and to make major purchases of the sovereign bonds of debt-ridden euro-zone countries, such as Greece, Portugal and Italy.
For his part, Weidmann is strictly opposed to these measures. He believes they amount to an unacceptable means of financing states through effectively printing money. In fact, he has come to assume the mantle of the last staunch defender of monetary stability.
His views were shared by his predecessor, Axel Weber, and the ECB's former chief economist, Jürgen Stark, both of whom stepped down from their positions because it was getting lonelier and lonelier on their side of the battle.
Weidmann, on the other hand, plans to keep fighting -- and in full public view. He gives speeches and interviews, like the one he gave to SPIEGEL last week. He riled Europe's finance ministers at their most recent summit in the Polish city of Wroclaw. And he has been having serious talks with the members of the budget committee of the Bundestag, the German parliament. Indeed, in an unprecedented campaign, Weidmann is trying to rally a majority of ECB council members to re-adopt the monetary-policy principles that Germany has traditionally championed.
'I Hope Weidmann Succeeds'
Having a Bundesbank president as the leader of the opposition on monetary policies is something that has seldom happened before in the subtle and sophisticated world of central bankers, who like to cloak even their fundamental decisions in opaque hints and insinuations.
Indeed, the game that Weidmann has started is a risky one. If he gets his way, the ECB could emerge from its worst-ever crisis even stronger than before. If he fails, the Bundesbank's positions on monetary policies might be buried for good.
"I hope Weidmann succeeds," says Thomas Meyer, the chief economist at Deutsche Bank, Germany's largest bank. "But I wouldn't bet on it."
Ironically, one of the things threatening Weidmann's chances of success is his popularity among Germans, who have gotten plenty of exposure to the young Bundesbank chief in recent days. He has become the new star of the euro crisis.
On Sept. 13, for example, Weidmann swept into a packed hall in Cologne's elegant Hotel Barceló to deliver a speech at the invitation of the ASU, an association of family-owned businesses in Germany. Dozens of executives from companies based all over Germany sat on chairs with gilded frames while ASU President Lutz Goebel, the head of a motor company in Krefeld, set the tone for the event. Goebel complained that some of the teetering countries in the euro zone had "no business model" and that Germany's government was constantly throwing "good money after bad."
Weidmann's voice also grew louder as he approached the key passages in his 23-page speech. The balance sheet of the ECB is "burdened with significant risks" because it has purchased sovereign bonds, he said, adding that he would advocate against any expansion of this policy "under any circumstances."
In his closing, he stressed that "with or without others fighting by my side, this stance will remain." The speech was received with thunderous applause.
The Stereotype of a Technocrat
Weidmann is playing a role he does not necessarily look cut out for. With his Ph.D. in economics and neatly parted hair, he seems like the stereotype of the cool-headed technocrat. In his steep rise from being a division head at the Bundesbank to a senior civil servant in the Chancellery, he knew not to force himself and his opinions into the spotlight.
These days, Weidmann is the most influential critic of Merkel's bailout strategy. This change has led the chancellor to follow her former aide's campaign at a cool distance. Merkel has nothing against the fact that Weidmann's new job makes him the champion of the Bundesbank's traditional positions. But that doesn't mean she's going to support him. On the contrary, sources close to Merkel say that, at their most recent summit, European leaders expressly approved the ECB measures that she backs and Weidmann opposes.
This forces Weidmann to rely on finding allies on the ECB council who will back his position. Doing so isn't completely out of the question, however, as the most recent purchases of sovereign bonds have triggered growing unease among some people in the ECB.
In early August, after having already purchased the sovereign bonds of Greece, Portugal and Ireland, the ECB decided to also buy Italian ones for the first time. The measures were meant to help Italy scare off speculators and to apply lasting pressure to keep interest rates on Italian debt low.
Since then, the monetary watchdogs have come to fear that they are throwing their money into a bottomless pit. Indeed, despite having already purchased over €150 billion ($200 billion) in sovereign bonds, there is no success on the horizon. Every time Trichet's securities traders stop buying, the interest rates start going back up. In this way, what was originally envisioned as emergency assistance has turned into long-term subsidization.
No Impact on the Market
Even the expanded European Financial Stability Fund (EFSF), whose new powers are expected to be ready to use by the middle of next month -- assuming that all the euro-zone parliaments ratify the reforms by then -- won't change things much. In short, the amounts of money that would be needed to help Italy would simply be too big for it.
"If the EFSF purchased €50 billion worth of Italian sovereign bonds, it would exhaust a good deal of its free resources without achieving anything on the markets," say Michael Heise, chief economist at the German insurance giant Allianz. This has led many central bankers to fear that European leaders will soon put pressure on the ECB to take renewed action.
US Treasury Secretary Timothy Geithner has already done just that. At the recent summit in Poland with his European counterparts, Geithner called for a banking license to be issued to the newly expanded bailout fund. The suggestion was also discussed at the meeting of the International Monetary Fund (IMF) and the World Bank held last week in Washington. Even Finance Minister Schäuble said he would think about the idea.
If this model were actually implemented, the EFSF could purchase significantly larger amounts of state debt and deposit them at the ECB as collateral in return for fresh money with which it could, in turn, purchase additional sovereign bonds.
But what Geithner and the Obama administration view as a particularly elegant solution to the euro crisis is a nightmarish idea to stability champions like Weidmann. Last week, he warned the German parliament's budget committee that "state financing through monetary policy" would become a permanent fixture if the solution were adopted.
Weidmann's low opinion of the most recent suggestions is also shared by Luc Frieden, the finance minister of Luxembourg. In his view, the planned changes to the EFSF bailout fund are intended precisely to free the ECB from the necessity of having "to purchase sovereign bonds itself."
What's more, many economists don't view Italy as a candidate for a default at all. The country enjoys a strong industrial base, boasts tens of thousands of healthy companies and has comparatively little foreign debt. Indeed, most government debt is owned by the Italians themselves. And even the level of debt could easily change if Prime Minister Silvio Berlusconi would for once make a serious attempt to collect unpaid taxes.
But, instead, the conservative politician finds it more convenient to tap European institutions, as Italian Finance Minister Giulio Tremonti recently put it in a blunt comment. He also figures that Italy wouldn't have to introduce any more austerity measures if euro bonds already existed on a large scale.
It's no surprise that Europe's central bankers are gradually losing patience. They no longer want to play the role of cleaning up after incompetent European politicians, and they're looking for an opportunity to demonstrate their independence.
This has only increased Weidmann's chances of recruiting supporters for his campaign. Last Tuesday, he already met with potential comrades-in-arms in Eltville, a small wine town near Frankfurt. The list of invitees included everyone on the ECB council who had ever given a hint of being open-minded toward the German position. Joining them were also Yves Mersch, Klaas Knot and Ewald Nowotny, the respective heads of the central banks of Luxembourg, the Netherlands and Austria.
One other Weidmann ally couldn't make it to the meeting because he was sitting on a Lufthansa flight heading from Frankfurt to Washington for an IMF meeting. Jörg Asmussen currently works in Berlin as a senior official in the German Finance Ministry. But, come 2012, he will head to Frankfurt to assume the position of Jürgen Stark, who announced his resignation as the ECB's chief economist in early September.
Though Asmussen has yet to make any public statements, he has made it clear to his confidants that he will number among Weidmann's allies. He detests the kind of mixing of monetary and fiscal policies that have come to characterize the attempts to save the euro.
Looking for Congratulations
But as long as Trichet remains at the ECB's helm, little will change in terms of its public stance. During a five-minute outburst at a Sept. 8 press conference, Trichet made it clear how much the German opposition had gotten on his nerves. "We have delivered price stability ... impeccably, impeccably," he angrily said. "I would like very much to hear the congratulations for an institution which has delivered price stability in Germany over 13 years."
But, ironically, instead of thanking him, the Germans even want to drag him to court on account of his bank's controversial purchases of the sovereign bonds of debt-ridden euro countries. Markus Kerber, a Berlin-based constitutional lawyer and financial expert, has filed a complaint at the General Court of the European Union in Luxembourg, hoping it will declare the purchases invalid and put a permanent halt to them.
In Kerber's view, by purchasing sovereign bonds, the ECB has violated a number of articles of the Treaty on the Functioning of the European Union, including articles 123 and 125, which deal with economic policy. In his complaint, Kerber says that "both the implementation of the program for the securities markets and the suspension of the credit quality threshold when determining whether the sovereign bonds of Greece, Ireland and Portugal were eligible to be treated as collateral by the central bank" violated the prohibition against purchasing government securities.
Preparing for the New Constellation
Still, it's going to take more than a court decision to settle this conflict. That will primarily be the job of Mario Draghi, the Bank of Italy governor who will succeed Trichet as ECB president in November. At that point, he will have to prove just how independent he is -- particularly when it comes to the government back home in Italy.
Weidmann and Asmussen have already started preparing themselves for the new constellation. They took a break from the IMF-World Bank meeting in Washington to meet at the bar of the Ritz-Carlton hotel with a professor they had both studied under in Bonn: Axel Weber, Weidmann's predecessor as Bundesbank president.
REPORTED BY PETER MÜLLER, CHRISTIAN REIERMANN, MICHAEL SAUGA, CHRISTOPH SCHULT AND ANNE SEITH