The Bundesbank is caught between a doveish ECB and a suspicious public

FRANKFURT IS BLESSED with not one but two central banks. In the north loom the brutalist headquarters of the Bundesbank—a raw-concrete structure that is three times wider than it is tall. Ascend to its higher floors and you get a splendid view of the city’s skyline to the south—including a gleaming glass tower completed in 2014. This is the European Central Bank (ECB), which in 1999 supplanted the Bundesbank as the monetary policymaker for Germany and much of Europe. Decisions made at the Bundesbank once sent tremors through the continent’s financial markets. Now, like the central banks in other euro member states, it has one seat out of 25 on the ECB’s governing council.

Though the ECB began life modelled on the Bundesbank, the past decade or so has seen fierce clashes between the two institutions over monetary policy. The hawkish Bundesbank sat on the sidelines as doves at the ECB, led by Mario Draghi, its boss in 2011-19, enacted extraordinary monetary stimulus. Now the Bundesbank is at an important moment. The euro-zone economy is floundering again and the German public is increasingly mistrustful of ECB policy, suggesting the risk of further fights over monetary loosening. But the arrival of a new boss, Christine Lagarde, at the ECB in November, and her year-long review of the ECB’s strategy, provides the Bundesbank with a chance...

Read More