Sunday, September 23, 2012

Draghi is devil in Weidmann’s euro drama

by Wolfgang Münchau

Financial Times

September 23, 2012

Such paper, in the place of actual gold, is practical: we know just what we hold ... But wise men will, when they have studied it, place infinite trust in what is infinite. Mephistopheles, from Faust Part Two, by Johann Wolfgang von Goethe

Whatever you need to know about Germany, you will probably find it somewhere in Goethe’s Faust. But it is rare that wisdom is found in part two of the tragedy, one of the most revered and least read books in all of German literature. Someone who managed to dig up something truly remarkable from it was Jens Weidmann. The president of the Bundesbank cited Mephisto’s advice to the Emperor, quoted above, that the simple solution to a lack of money is to print it.

Mephisto’s speech encapsulates Germany’s ultimate nightmare about fiat money and about monetary union. It was clear from the context and the timing of the speech that Mr Weidmann would cast Mario Draghi in the role of modern-day Mephisto, though, obviously, he did not say so explicitly. Mr Weidmann’s remarks concluded one of the most extraordinary two-week periods in the history of central banking. We are on the cusp of an important new development, one the Bundesbank abhors. The US Federal Reserve has adopted a new programme of quantitative easing and has become much more determined in guiding future expectations. The European Central Bank, which Mr Draghi heads, has announced an unlimited – though conditional – programme of bond purchases; a programme that jars with everything the Bundesbank stands for and believes in.

Beyond these concrete actions, there is now a debate in the academic community about what could take us beyond hell – at least from the perspective of Faust and Mr Weidmann.


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