January 29, 2023

What we know about incoming Bundesbank President Nagel

Joachim Nagel was confirmed by German cabinet today as the pick to lead the Bundesbank, taking over from Jens Weidmann.

The position is notorious for hawkishness and Nagel will undoubtedly take the reigns on that front but this time he will have some fundamental backing with prices rising in Europe and much of the world. The latest ECB projections boosted 2022 inflation by 1.5 percentage points to 3.2%. That will give the hawks something real to squawk about.

One hint about his leanings comes from a 2015 FT interview where he lamented QE.

Shortly after the ECB started its quantitative easing policy of buying
vast amounts of government bonds in 2015, Nagel warned in an interview
with German newspaper, Börsen-Zeitung, of the “key danger” of an
“intermingling of monetary policy and fiscal policy”. Echoing concerns
often expressed by Weidmann during his decade at the helm of the
Bundesbank, Nagel said: “There is a risk that the budgetary
consolidation required in some euro countries will be put on the
backburner”, which he said “could then increase political pressure on
the ECB council to postpone an interest rate hike that is necessary from
a monetary policy point of view”.

What else do we know about him?

Adam Tooze today digs into his background, including his PhD where he wrote about the supply-side economic policy of Ronald Reagan and he had this takeaway.

“Having skimmed the PhD two things stand out. It is not a highly
technical exercise, more a narrative treatment of the 1980s economic
policy scene in the US. He concludes that the Reagan administration was
not successful in dramatically lowering marginal tax rates (state-level
increase offset federal cuts). But, rather than rejecting supply side
measures outright, in conclusion Nagel pleads for a reconciliation
between demand-side macroeconomic policy and supply-side policy. Above
all he calls for a coordination of policy.”

Digging through his CV, he left the Bundesbank in 2016 after losing out in the race for the deputy position to Claudia Buch and joined KfW, the German state-owned development bank where he was chairman of supervisory board of KfW Ipex-Bank.

What happened there could have been the end of his career as the bank loaned Wirecard more than 100m euros that was nearly all lost in its scandal and collapse. However there’s been no real political reckoning from Wirecard and somehow here he is at the top of the pile.

He has been widely cited as an excellent communicator and at age 55 he will be a favorite to succeed Christine Lagarde when the time comes.

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