By Wolfgang Bauer , Fund Manager in M&G’s Institutional Public Fixed Income Team

Wolfgang Bauer

With European inflation running above 3%, Jens Weidmann sure picked an interesting point in time, to say the least, to announce his resignation as Bundesbank President at the end of the year. Whether the departure of one the most conservative members of the ECB's Governing Council will deal a blow to European monetary policy hawks or not will of course depend on Weinman’s successor. According to German law, the President of the Bundesbank is nominated by the German government before being appointed by the President of Germany.

Hence, the outcome of the current coalition talks in the wake of the recent German federal elections does matter in this context.

A Scholz government with the Social Democrats as the leading coalition party could push for a less hawkish Bundesbank President. If that’s the case, the power balance within the ECB’s Governing Council would shift further towards the doves, which would make a departure from the current ultra-expansive monetary policy in Europe with rock-bottom interest rates and high asset purchase volumes less likely. Peripheral risk assets in particular might benefit from a more dovish Bundesbank and, by extension, ECB.