'Enormous Damage' Weber's Exit Highlights Merkel's Euro Problem

Bundesbank head Axel Weber's resignation has made one thing clear: The debate about the future of the euro has become intense -- and bitter. Indeed, Chancellor Angela Merkel's efforts at mandating strict monetary discipline for the euro zone may ultimately fail. And German euro skeptics may be gaining ground.


By and

The breakfast for conservative ministers prior to Chancellor Angela Merkel's weekly cabinet meeting is considered the most secretive and concentrated gathering in the day-to-day business of political Berlin. There are no leaks, no mobile phones ringing and no one leaves the room.

Last Wednesday, however, the morning discussion was abruptly interrupted. The ministers belonging to Merkel's center-right Christian Democratic Union (CDU) and its Bavarian sister party, the Christian Social Union (CSU), were just perusing the first items on the agenda when a Chancellery employee told Merkel that she had an urgent call. Jens Weidmann, Merkel's economic advisor, was on the line to tell her that Axel Weber, president of the German Central Bank, the Bundesbank, intended to announce his resignation that day.

When Merkel returned, the cabinet members could tell by the expression on her face that something very unpleasant had happened -- so unpleasant, in fact, that close associates would later call it a "catastrophe." Merkel conferred briefly with Finance Minister Wolfgang Schäuble before calling Weber. It quickly became clear that there was nothing that could be done.

He had given careful thought to his decision, the banker told Merkel. He said that he felt isolated as a result of his strict, anti-inflation policies, and that he was practically alone in his views within the European Central Bank (ECB). Under these circumstances, Weber explained, he could not continue in office, and certainly could not become ECB president.

Deaf Ears

Merkel's objections fell on deaf ears, but she did convince the country's top monetary official to make one concession: Weber promised that he would not make a public statement until he had met with Merkel in person.

What followed was two days of intense confusion. Announcements that Weber was going to issue a statement were made and then cancelled. There were also rumors that the Bundesbank president was to succeed Josef Ackermann as chief executive of Deutsche Bank. Speculation over Weber's motives was rampant.

Even on Friday, after Merkel had met face-to-face with Weber, clarity was at a premium. In a tersely worded afternoon statement, it was announced that Weber would step down at the end of April, and that his successor would be announced this week.

The chancellor must now find a new Bundesbank president in record time. But this marks only the beginning of Merkel's difficulties. The fact that she is losing her most prominent monetary policy expert in the midst of the euro crisis is the lesser of her problems. It is more worrisome for Merkel that Weber's resignation makes a mess of her strategy for the future architecture of the euro.

A Symbol for Euro Skeptics

She was determined to install Weber as ECB president, in the face of much resistance, especially from southern Europe. She had wanted to send a message that Europe's monetary policy is based on established German principles, is largely independent of political meddling and is strictly oriented toward stable prices.

Instead, Weber now threatens to become a symbol of those among Merkel's conservatives -- and within her junior coalition partners, the business-friendly Free Democrats (FDP) -- who are skeptical of the euro and have long been uncomfortable with measures to rescue the common currency. "If (the ECB president) holds a minority opinion on key issues," Weber said in an interview with SPIEGEL, "then it has a negative effect on the credibility of the office."

Things couldn't be worse for the chancellor, particularly given the approaching state elections in Rhineland-Palatinate and Baden-Württemberg. She had hoped to be able to portray herself as a chancellor who staunchly supports the euro -- one who ensures that no German money goes to Europe without getting something in return. But now, the head of the country's central bank has made public his fears that, in the Europe-wide negotiations on saving the common currency, German discipline could lose out.

The two politicians are not just at odds over monetary policy. Apparently there is also a deep personal rift between them. Until recently, Merkel and Weber were seen as close allies, whose relationship was partly bolstered by the fact that former students of Weber, from the time when he was an economics professor, hold key posts in the Berlin government. Both Finance Ministry State Secretary Jörg Asmussen and Merkel's economic advisor Jens Weidmann were once students of Weber's.

Cross Purposes

Now, however, it would seem that Merkel and Weber have been talking at cross purposes for months. Just who might be responsible for the miscommunication, however, remains unclear.

Only last spring, everything seemed to be going well. Merkel had taken steps in Europe to ensure that Weber was almost certain to succeed ECB President Jean-Claude Trichet, whose term expires in November. With her help, Portuguese politician Vítor Constâncio had been named ECB vice-president. Based on the complicated arithmetic of power in Europe, this meant that the future president had to come from a large northern European country. Everything pointed to Weber, and even the French had signaled their approval.

But then last May the ECB, in an effort to save the euro, decided to buy up government bonds of highly indebted countries like Greece, Portugal and Ireland. In Weber's view, this was a serious violation of the ironclad principle that money should not be printed to finance government debt. In addition to criticizing the measure internally within the ECB council, Weber took the unusual step of making his reservations public. In doing so, he not only incurred the wrath of ECB President Trichet ("There is only one ECB statement, and it comes from me"), but he also ran afoul of most other members of the ECB governing council.

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