Olaf Scholz eyes Joachim Nagel to run Germany’s Bundesbank

Joachim Nagel, a top executive at the Bank for International Settlements, has moved into pole position to head Germany’s central bank in one of the first major appointments by the country’s incoming coalition government, according to a person with direct knowledge of the matter.

Nagel, 55, who spent most of his career at the Bundesbank before joining the BIS as deputy head of the banking unit last year, has emerged as the preferred candidate to succeed Jens Weidmann, who announced last month that he would step down as president at the end of the year.

Other contenders for the role included Isabel Schnabel, a member of the ECB executive board, and Jörg Kukies, a state secretary in the finance ministry, but they are no longer in the running, people with knowledge of the discussions said. A decision has yet to be finalised however, they cautioned.

Nagel’s views on monetary policy are little known, as most of his 17-year career at the German central bank was spent supervising capital markets.

Weidmann’s replacement is one of the first big decisions for Olaf Scholz, who is set to replace Angela Merkel as chancellor next week after his Social Democrat party won general elections in September. Scholz has formed a coalition with the Greens and the liberal party to govern.

The appointment comes at a tense time for the Bundesbank, where officials have grown worried by the surge in eurozone inflation to a record high of 4.9 per cent last month — well above the European Central Bank’s 2 per cent target.

A person familiar with the talks said Scholz was leaning towards Nagel partly out of a desire to install a central banker rather than an academic at the helm of the Bundesbank to maintain the stature and influence of the institution.

The Bundesbank has traditionally been uncomfortable with the ECB buying vast amounts of bonds, fearing it will stoke runaway inflation, encourage asset price bubbles and reduce fiscal discipline by lowering borrowing costs for profligate governments.

Inflation has risen even faster in Germany, where it recently hit a three-decade high of 6 per cent, causing growing political angst. “We should not be aiming for high inflation like we have today,” Scholz told Bild TV this week, adding that if it did not fall as fast as expected “we have to do something”.

Weidmann will depart soon after the ECB governing council meeting on December 16 that will discuss plans to start winding down its flagship response to the coronavirus crisis — the €1.85tn Pandemic Emergency Purchase Programme.

Nagel, who studied economics at the Karlsruhe Institute of Technology, was a consultant to the Social Democrat party in the 1990s before moving to the US as a researcher and then joining the Bundesbank in 1999, where he was head of markets and later a board member responsible for international relations and IT.

After leaving the Bundesbank in 2016, he joined the executive board of KfW, the German state-owned development and investment bank. Just over a year ago he joined the BIS senior management team.

While his experience is stronger on the financial supervision and markets side of central banking than the monetary policy side, Nagel built support by talking to all three political parties that agreed to form the next government — including the Greens and the liberal Free Democratic party.

Schnabel’s appointment would have left Scholz with the difficult task of finding another woman to replace her at the ECB, while Kukies is now expected to have an important role in the chancellor-elect’s team.