Diplomacy in central banking debate comes back to bite Weber

September 1, 2010
German central bank board member Thilo Sarrazin

German central bank board member Thilo Sarrazin

Fresh from asserting that diplomacy is over-rated for central bankers, German Bundesbank President Axel Weber is now embroiled in an embarrassing scandal over undiplomatic comments from one of his board members which could ultimately damage Weber’s own career ambitions.

Thilo Sarrazin, who joined the central bank’s board last year, has unleashed a debate in Germany over immigration and integration policy with a book critical of Turkish immigrants and has drawn rebukes from political leaders, including Chancellor Angela Merkel, for asserting that Jews and Basques have a “particular gene” that sets them apart.

The Bundesbank condemned his comments as harming the reputation of the institution and is considering its options, but under German law – designed to safeguard the independence of the central bank from political swings and roundabouts — has only limited options to get him removed.

Weber is seen as a front-runner to replace Jean-Claude Trichet as president of the European Central Bank next year and failure to act swiftly against Sarrazin may not reflect well on his leadership skills.

But German commentators noted that recommending Sarrazin’s sacking to the German president, the toughest sanction available to the Bundesbank, and then facing a drawn-out court case for unfair dismissal would be even worse.

“The Bundesbank’s crisis could quickly turn into a national crisis if a court overturned (his dismissal),” warned one legal expert, who asked not to be named.

Weber has already raised eyebrows for criticising the ECB’s decision to buy government bonds earlier this year and for publicly commenting on the likely direction of ECB decisions, pre-empting announcements by Trichet.

Pressed about whether he was enough of a diplomat for the top job, Weber said two weeks ago that central bankers sometimes had to put “diplomacy in the back seat” – comments which may now come back to haunt him.

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