The Bundesbank, 1975, 1997, 2012 ?

We have seen some remarkable shifts lately on the German political front. Yesterday, Frau Merkel wistled back its CSU coalition partner after an interview in Der Spiegel which was rather unfriendly towards Mario Draghi and Greece. In addition, in her ARD appearance, Frau Merkel was remarkably in favor of the ESM rescue construction, also a new element to reconsider.

My colleague Nikolaas Bellens pointed towards an another interesting episode in German history. We already blogged on the 1975 QE experiment but this story has even more funny angles. In 1997, it became clear that even Germany had trouble in reaching the standards it co-imposed in the Maastricht Treaty in December 1991. Now Chancellor Kohl and Finance Minister Theo Waigel (CSU Bavarian and usually rigid on budgetary orthodoxy), suddenly came up with the plan to revalue the German gold reserves held by the Bundesbank, this in order to qualify for the Maastricht debt criteria. This would boost revenue, lower the deficit and to be used to pay off old debt as well. Note that next to Kohl (CDU) and Waigel (CSU), the government statement on this revaluation intention was signed by Wolfgang Schauble (CDU, current German finance minister as well). The statement said the plan made sense and was responsible. In an interview afterward, Mr Waigel said "we want to uphold the independence of the Bundesbank. It makes sense to do this in 1997. What makes sense in 1999 cannot be wrong in 1997"

Now this initial plan generated fierce resistance, not in the least from an international political surprising angle : Lionel Jospin, later in 1997 to become French PM of PS signature, really, of all people (!!). He immediately attacked the Kohl/Chirac axis, saying the Waigel gold reserve trick was "accounting trickery" and a "bookkeeping fudge".

Of course the Bundesbank wasn't happy either over this political move. In May 1997, the Bundesbank issued the following statement : "With a payout in the year 1997, the reference year for the choice of participating nations in monetary union, the danger exists of a loss in trust in the stability of the future currency. We also dispute the government's argument that a gold revaluation would count toward a lower deficit under the rules of the EU Treaty".

And so good old Hans Tietmeyer - Buba architect of Maastricht and also better known as "The Tiet", came into the game. He invited Bonn for coffee in Frankurt and in June, the following compromise saw the light : Bonn was allowed to benefit from a revaluation of the Buba's forex reserves but gold was to be left untouched until after 01/01/99.

Now do you spot some resemblances with what is going on right now ? I think we have reached the phase where the major rescue decisions are carried by European political heavy weights and the ECB president. It now all boils down to finding a workable compromise in acceptable wrapping paper so it can be sold to the Buba without "perdre face" too much.