Monday, December 15, 2014

Karl Otto Pöhl: An Honorable(?) Central Banker Has Died

Well, he wasn't bad compared to most of them.

Pöhl, president of the German Bundesbank for 11 1/2 years between 1980 and 1991, died last week. I met him once in Germany and as far as central bankers go, and pretty much anyone else, he had an incredibly beautiful and elegant wife. She was so much so that it even caused me to think for roughly an hour about pursuing a career as a central banker.

David Marsh notes:
Pöhl was not Helmut Schmidt’s first choice for Bundesbank president in 1980. The West German chancellor favored Deutsche Bank head Wilfried Guth. But, when Guth declined, Schmidt awarded his former protégé the top job. Schmidt expected a certain understanding from the man he had appointed as state secretary to the Bonn Finance Ministry at Christmas 1972, plunging him into dealing with a string of high-level international monetary emergencies.

When West Germany started to suffer from a weaker d-mark from 1979 onwards, partly as a result of undue monetary easing in 1977-78, Pöhl, first as Bundesbank vice president and then from 1980 as its chief, had no choice but to uphold the Bundesbank’s twin principles of price stability and independence. He tightened the monetary screw, in spite of protests from his former mentor...

Schmidt’s successor Helmut Kohl — who was starting to take a partisan dislike to Pohl’s plain speaking on the economic dangers of German unity — was making up his mind without warning to extend the d-mark to the east. All this was a major factor behind Pöhl’s decision prematurely to quit the Bundesbank in May 1991...

As a member of the Social Democratic Party, Pöhl was flattered when Christian Democrat Chancellor Kohl reappointed him for a second eight-year term from January 1988...

Pöhl was irritated when Kohl telephoned him in December 1987 to encourage the Bundesbank to cut interest rates, in an internationally coordinated plan for economic stimulus after the October 1987 stock market crash. Pöhl had little option but to comply, although he later regretted it as helping stoke overheated West German expansion — marketing the start of a progressive brittleness with Kohl.

In the end, Pöhl finished with the hard-worn distinction of falling out with the two German chancellors who appointed him — a bittersweet badge of central-banking honor.

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