Germany's chief banker announces his resignation

May 17, 1991|By Ian Johnson | Ian Johnson,Special to The Sun

BERLIN -- Following a yearlong feud with the government over economic policy, the head of the German central bank resigned yesterday.

Karl Otto Poehl's unprecedented decision to leave the Bundesbank before his term expires was a body blow to the already wobbly government of Chancellor Helmut Kohl and is expected to weaken Germany's influence in European and international financial affairs.

Mr. Poehl will step down in October, four years early and after 11 years of leading the Bundesbank, Germany's unusually independent central bank.

In explaining his decision, Mr. Poehl was uncharacteristically reserved and diplomatic, saying that it was "no demonstration for or against anyone."

Later, however, he admitted that the cool relationship between the Frankfurt-based institution and the German government had influenced his decision.

It is believed he will take a position at a New York firm.

Financial markets reacted calmly to the decision. The new president, who is to be named within 14 days, is not expected to lower interest rates. On Tuesday, when the rumors of Mr. Poehl's impending resignation started, the Tokyo and Frankfurt stock markets dipped at the prospect of Germany's already damaged economy losing its most important leader.

Mr. Poehl, a Social Democrat, was appointed by the socialist-liberal government in 1980 and won widespread approval. He was often compared to former U.S. Federal Reserve chief Paul A. Volcker for his opposition to lax monetary policy.

In 1988 he was reappointed to the post by Mr. Kohl's conservative-liberal coalition. He had few problems with the government until German unity came along and three major conflicts cropped up.

* Last year, Mr. Poehl almost resigned when he was not consulted about the government's plan for currency union with East Germany.

Mr. Poehl argued that the politically popular decision by Mr. Kohl to exchange weak East marks for strong West marks on par would force up wage costs in eastern Germany and push companies to bankruptcy.

* Later, he took issue with the government's promise that unity would cost taxpayers nothing and would be financed by economic growth. Mr. Poehl said that the budget would have to be cut or taxes raised to pay the cost of realigning the East German economy along capitalist lines. Borrowing, he said, would overburden the capital markets, push up interest rates and stall economic growth.

In both cases Mr. Poehl was proved right, prompting him to label German economic union a "disaster."

* This experience indirectly led to the third sticking point -- European currency union. Mr. Poehl became hesitant to endorse a quick European currency union, which was politically favored by Mr. Kohl.

Mr. Poehl warned that the economies of European Community's member countries had to become more similar before they could unite their currencies. A quick currency union without creating European-wide institutions similar to the Bundesbank would be costly and weaken the new currency, he argued.

It may be Mr. Poehl's greatest success that he convinced other EC countries of his point last week. The five strongest EC countries are to unite their currencies first, and the new currency's central bank is to be as independent as Mr. Poehl's Bundesbank. Other countries will be allowed to join the new super currency when their economies catch up.

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