By Francesco Canepa

FRANKFURT (Reuters – Joachim Nagel of the Bundesbank is a likely future president. A former policymaker at Germany’s central bank, he upheld the conservative ideology when he was elected to a seat on the board.

Jens Weidmann resigned five years ago after opposing the aggressive stimuli policy of European Central Bank of subzero interest rates, massive purchase of government bonds and mass purchases. He was replaced by him on Jan. 1. According to reports in media and a source from government,

Nagel, Germany’s representative in the ECB’s Governing Board, will be a part of key decisions. This includes how the ECB handles a time of extremely high inflation and uncertainty resulting from the coronavirus epidemic.

Nagel’s nominating ceremony is scheduled for this week.

After joining the Bundesbank as an economist in 1999, the 55 year-old rose up the ranks to become a board member in just over ten years. In 2016, the bank switched to KfW state-owned lender.

Nagel, currently working at Bank for International Settlements has not made public any opinions on monetary policies for many years.

His speeches as a Bundesbank member board member in 2010 and 2016 clearly show that he was committed to maintaining the German central banks’ strict anti-inflation stance and putting emphasis on market discipline both for governments and banks.

Nagel stated that the ECB needed to refocus its attention on inflation and not on state finances in spring 2012.

He stated that “the clear seperation of duties between fiscal policy and monetary policies must not be in doubt.” “Monetary should refocus its attention on price stability in Euro Area as soon as it is possible.”

That battle was lost by the Bundesbank: Mario Draghi, then President of the ECB, made the famous promise to “do whatever it takes” in order to save euro. Just a few months later, the ECB began the first of many massive bond-buying programs.

TRILLIONS OF EUROS

The euro zone’s central banking has amassed trillions in bonds over the past decade, mainly sovereign debt from its 19 member countries.

The original goal of the ECB was to boost price growth in the Euro zone. More recently, it has tried to lessen the government debt burden to help finance COVID-19.

Both Draghi and Christine Lagarde were his successors. The ECB provided banks with more affordable multi-year loans. In fact, they have recently paid them to borrow, provided that their loan books do not shrink.

Weidmann opposed all these measures, and Nagel’s speeches reveal that he also had reservations about them.

Nagel stated that the Eurosystem of central banks in the euro area had done everything it could, months after 2015’s launch of the ECB’s Asset Purchase Programme.

In October 2005, Nagel stated that the Eurosystem had reached its limits with its crisis actions. All market participants must understand that central bank funding cannot be relied upon forever.

The Bundesbank accepted the purchase, albeit reluctantly, of bonds from the government as one tool of the ECB.

Nagel’s selection is one the first decisions made by Germany’s newly elected government. This includes Olaf Scholz (Social Democrats), the Greens, as well as the Liberal FDP.

This coalition marks a change in German politics, after sixteen years of Angela Merkel’s conservative government. They are expected to be more generous with their spending and investing.

However, even Nagel is a Social Democrat at the helm, there’s no way to shake the Bundesbank’s deep-rooted scepticism about feeding the economy with public money.

Even as far back June 2014, he stated the economy should be let go of public support. He said in a speech: “The genuine economic recovery must start from a solid foundation.

Nagel stated then that “Growth should be more based on private consumption.” That will help to free the economy from its dependence on extraordinary monetary policies and excessive government spending.