Friday, June 7, 2013

What's the Bundesbank counterfactual?

Neil Irwin describes Axel Weber as looking like Tony Soprano
Image source

On May 10, 2010, the ECB announced that it would buy peripheral sovereign debt, ostensibly to "restore an appropriate monetary policy transmission mechanism" but also to address the debt crises in Greece, Portugal, and Ireland. Axel Weber (then-president of the Bundesbank and, therefore, member of the ECB Governing Council) was strongly opposed to the program. The following occurred prior to the announcement but after the decision.

Shortly after the Governing Council meeting Sunday evening, Weber convened a conference call of the Bundesbank Executive Board. . . . Officially he wasn't supposed to tell anyone of what the Governing Council had just decided, but this was so momentous that he posed a quite serious question to the board members: Should we do it? Should the Bundesbank follow its marching orders from the ECB and buy billions of euros' worth of Greek and Portugese bonds, violating its long-cherished principle of not using the printing press to fund governments? . . .

Staring at that precipice, the Bundesbank concluded it was better to hold its nose and violate orthodoxy than to unleash such dangerous consequences.

This jarring revelation is from page 231 of Neil Irwin's book, The Alchemists, which I have very much enjoyed.


  1. I enjoyed that book as well. Although I did think it went a bit light on the ECB and Bundesbank to be absolutely honest ...

  2. I agree with that. In general, I felt like it was excellent storytelling, but he didn't do much critical analysis of the central bankers' decisions. But it was a very fun read.