RIEFING ON THE STORIES BEHIND THE WORLD’S ECONOMIC NEWS
Tue 13 Jan 2015
Karl Otto Pöhl: Germany’s Banker
Bundesbank chief who weathered reunification
By Michael Stürmer
This is a translation of an address by Prof. Stürmer, a member of the OMFIF Advisory Board, at today’s memorial commemoration for Karl Otto Pöhl at the Deutsche Bundesbank in Frankfurt.Karl Otto Pöhl was Germany’s Banker. As Bundesbank president during a period of great turbulence, between 1980 and 1991, he fully lived up to the epithet ‘legendary‘. Pöhl’s destiny was to confront an array of challenges that were nothing short of epic: unsettled international financial markets after the 1971 breakdown of the gold-dollar link; a threat to internal and external equilibrium in the main industrial countries stemming from the 1973 and 1979 oil shocks; tensions between Paris and Bonn within the European Monetary System.And then, in 1989, the fall of the Berlin Wall, the precursor to a new world order that we can say was ‘made in the USA’, bringing a new balance of power in Europe with repercussions that are with us still today.In all this, the Bundesbank was a key background force acting for equilibrium between opposing influences. Pöhl personified confidence in monetary stability, not just in Germany but, increasingly, on a European scale. The Anglo-Saxons appreciated his technical competence, communication skills and, not least, sense of humour. He became a firm ally of Paul Volcker, his opposite number for a while at the US Treasury and Federal Reserve. In rare fashion Pöhl combined a relaxed approach to crisis management, with, when necessary, sometimes brutally clear language. In London they said of him, ‘He does not suffer fools gladly.’
Pöhl and the Bundesbank enjoyed elevated status, summed up in the celebrated description of European Commission President Jacques Delors: ‘Not all Germans believe in God. But they all believe in the Bundesbank.’ The French, displaying both respect and wariness, called the German central bank in its beetling headquarters on the River Main ‘le monstre de Francfort’.
Pöhl countered such barbs by insisting on a basic truth: that a currency was reliant solely on the trust of the citizens and the capacity of the state behind it to stick to the rules. After two periods of disastrous inflation, this was, in Germany more than elsewhere, a central lesson of history. The catastrophe of money had been, after all, both cause and effect of the catastrophe of politics: difficult to forget for a man born in the Depression year of 1929.
Five decades later, Pöhl, as Bundesbank president, was the right man in the right place at the right time. And he knew instinctively, when the time came, that it was right to give up his post, after the political order of the day decided to embark upon paths that the Bundesbank, and especially Pöhl himself, deemed inappropriate.
With regard to existential questions on the common currency, both sides, the Chancellor and the Bundesbank president, had good, but opposing, reasons for their arguments. This produced a conflict, tragic in nature, which could end only in one way: the resignation of a man who believed in the non-negotiability of the citizens’ trust in good and stable money.
Since the severing of the dollar-gold link, the institution over which Pöhl presided for 11 years had become a hallmark of world-class monetary crisis management. This was Pöhl’s credo, and he had to live up to it.
Pöhl was unquestionably right in forecasting that the one-to-one conversion of the East Mark into the D-Mark would be highly detrimental to the East German economy. He was accurate in warning that, after the Wall fell, France under President François Mitterrand would strain every sinew to seek a new European compact including monetary union as decided (after Pöhl quit) in Maastricht.
He knew that, over time, a common currency could be secured not by political fiat but solely by genuine convergence, in social, economic and cultural matters as well as in attitudes towards the role and the performance of the state – issues deeply rooted in history. That is the secret of the common currency. In reality, not really so secret at all.
In the case of Greece, where Pöhl was one of the first to issue words of warning, the path turned out to be uphill if not impassable; with respect to France, it was increasingly stony, with an outcome no one can predict.
As a man in private commerce after his time in public service, Pöhl was sparing in his utterances, but he made no great attempt to hide his scepticism about the decisions and compromises of politics and economics. With respect to the political world, a Bundesbank president cannot display any kind of gratitude. His loyalty is to the nation, not to the political apparatus that gives him his job. That was always Pöhl’s understanding of his public role. The Bundesbank president, and his institution, are the guardians of public trust. To this day, the Bundesbank enjoys a higher status in public confidence than the European Central Bank and all elected authorities, including the German parliament and the German government.
Pöhl regarded himself, in line with the legal position of his office, as a kind of national trustee. To his successors he bequeathes no memoirs, no unsought recommendations. But he leaves concepts and signals that can guide their actions. He knew better than others, in the words of Joseph Schumpeter, what makes up ‘the essence of money’. He knew that the value of a currency is inseparable from the political, historical and cultural influences behind it. Karl Otto Pöhl has a deserved place in German history: a man of wisdom and character who could handle setbacks as much as he could bask in success. He was Germany’s Banker. That is how, in our hearts and minds, we will remember him.
Prof. Michael Stürmer, a leading German historian and member of the OMFIF advisory board, is chief correspondent, Die Welt.
Global Public Investor 2015OMFIF is producing the next edition of the Global Public Investor (GPI), a comprehensive publication devoted to public-sector asset ownership and management across official institutions around the world, including central banks, sovereign wealth funds and a multiplicity of other public asset funds, especially in the pension sector.GPI 2015 goes into greater detail on big investment themes by providing macroeconomic data on countries’ net foreign investment positions and the proportions held by official institutions in each case.For more information on the publication, please email:email@example.com.