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‘World’s Most Interesting Central Banker’ Sells ECB to Germans

·5 min read

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Isabel Schnabel might have one of the most awkward jobs in global economics -- as a German policy maker at the European Central Bank.

Almost two years since becoming the top official in charge of markets, the former academic finds herself frequently in the spotlight in her home country as inflation there surges ever higher.

As with many Germans, Schnabel’s own instincts can lean hawkish, possibly more than any of her five Executive Board colleagues after she declared this week that price risks are “skewed to the upside.” Unlike many previous German policy makers however, she has also gone out of her way to engage with citizens in Europe’s largest economy.

That mission is all the tougher with inflation probably reaching close to 6% in data due Monday, at a time of post-election political flux. In an illustration of her challenge, national tabloid Bild Zeitung last month attacked the ECB policy maker as someone “who makes German savers shiver” for previously supporting ultra-loose stimulus.

Bild’s criticism was incited by Schnabel’s potential candidacy for the Bundesbank presidency to replace Jens Weidmann, for which she was initially seen as the frontrunner. Grasping the nettle of selling ECB policy to a bitter German public would make her worthy of that role, says former colleague Peter Bofinger.

“If we had two Isabel Schnabels, I would put one in the ECB and one in the Bundesbank,” said Bofinger, a professor at the University of Wuerzburg who worked alongside her at the German government’s council of economic advisers. “She’s different to all of her predecessors -- there was never an attempt before to explain the ECB and to address German problems and sensitivities. She’s very committed to that.”

Schnabel, 50, was tapped by Chancellor Angela Merkel’s coalition in 2019 to replace Sabine Lautenschlaeger, who resigned abruptly from the ECB after a contentious decision to restart quantitative easing.

Lautenschlaeger never specified that as a reason, but her early departure was one in a long line by German central bankers who had thrown in the towel, often in open disagreement with the institution’s stance.

By contrast, Schnabel appears comfortable with her role, articulating less openly conservative views than many of her peers, and applying a more hands-on approach in a country with long memories of Weimar-Republic hyperinflation, where the Frankfurt-based ECB has found itself alienated from local citizens.

“If there are misunderstandings in the public, it’s our job to explain,” she said in an interview this week. “The debate about inflation is very important. As long as this debate is conducted at a factual level, this is more than welcome.”

In one of her first speeches, she slammed “half-truths and false narratives” about the ECB and called excessive criticism “dangerous because it not only jeopardizes trust in our single monetary policy, but also undermines European cohesion.”

That drew a rapid rebuke from Juergen Stark, a former ECB chief economist who quit in 2011 over opposition to stimulus. Writing in the conservative Frankfurter Allgemeine Zeitung, he wondered aloud whether critics were being muzzled.

Undeterred, Schnabel has used a variety of channels to explain the ECB’s response to the pandemic, including Q&A sessions on Twitter and interviews with German Youtube personalities.

“We have to find ways to be heard and ideally also understood,” she said. “At times it’s difficult, because the commentary goes to a personal level.”

Joerg Asmussen, who himself faced a hostile German public as an Executive Board member during Europe’s sovereign debt crisis, and who called for more engagement with Germans before Schnabel was confirmed in the job, credits her for doing that.

“It’s very good that Ms. Schnabel actively communicates ECB monetary policy, also on social media,” he said in an email. “It’s always important to point to the ECB’s responsibility for the whole euro zone, as Ms. Schnabel is doing.”

She has balanced that with some hawkish views of her own, and currently stands out as the Executive Board member displaying most alarm on consumer prices.

“Schnabel drew attention to inflation risks very early on,” said Ulrike Kastens, an economist at DWS Group in Frankfurt. “She was certainly a bit more hawkish than others.”

Previously an economics professor at the University of Bonn, Schnabel has won recognition for the quality of her analysis. After a recent speech to a Federal Reserve conference, Swedbank economist Andreas Wallstrom described her as “the most interesting central banker in the world.”

“The intellectual weight in her speeches I find very interesting -- you can compare that with Andy Haldane,” Wallstrom said in an interview, referring to the former Bank of England chief economist and U.K. public intellectual. “She talks about core topics like inflation, asset purchases, but also the greening of central banking.”

It hasn’t all been plain sailing. Little more than two months in, the ECB was engulfed in a financial crisis after President Christine Lagarde declared that it wasn’t there “to close spreads,” a line Schnabel had used behind closed doors with officials. It took a 1.85 trillion-euro ($2.1 trillion) bond-buying program to appease investors.

The bitter domestic criticism Schnabel encounters is another challenge, but it doesn’t deter her. In September, as the consumer-price spike extended higher, she lamented how “supposed experts and the media are again rousing people’s fears.”

“Some of the myths are still there,” Schnabel told Bloomberg. “In the context of rising inflation, new narratives appear.”

With the Nov. 29 data expected by the Bundesbank to surge to a new three-decade high, the onus will remain on her to keep engaging as the only top ECB official with the native language to speak directly to Germans.

That challenge could intensify as coalition talks conclude to form a government, with Free Democrat Leader Christian Lindner, a critic of loose ECB policies, likely to become finance minister.

“To go against the current of the public debate in Germany is arduous,” said Bofinger. “Schnabel is really trying.”

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