On Wednesday the Bundesbank celebrated its 55th birthday (though its origins stretch back to 1948).
For the first half-decade of its existence, it developed an enviable reputation as the world's pre-eminent central bank. It presided over first the Wirtschaftswunder ("economic miracle") with growth rates that would not discredit India or Brazil today. Then came a long period of steady, strong growth – crucially, with minimal inflation.
The political independence of the Bundesbank was vital. Three times in the previous half century, the German currency savings had been shredded by politicians generating hyper- inflations.
The consequences of that remain painful. So when Chancellor Kohl decided in 1989 that Germany's destiny was in a United States of Europe with one currency, with economic integration running ahead of political union, there was no institution more sceptical than the Bundesbank. Still, though, it went ahead, and the Bundesbank has since publicly described the move as a "defeat". Others in Germany may now agree it was an error.
Hence there were severe misgivings about giving up the Mark when the euro was created and the demotion of the Bundesbank to being one of what is now a committee of 17 central banks in the European Central Bank. Theoretically the Bundesbank is no more powerful than the central bank of Cyprus. The reality is, of course, very different. As an old saying goes, "he who pays the piper calls the tune", and for so long as the Germans have to pay the lion's share of the bailouts, the Bundesbank and the German government maintain a veto.
So when the head of the European Central Bank, Mario Draghi, declared, to the great relief of investors worldwide, that the ECB would do "whatever it takes" to save the euro, what he meant was "whatever it takes – providing the Bundesbank agrees". Plainly they do not.
My understanding is that, even now, there is as yet no final, definitive policy that has been developed in Frankfurt or Berlin, but the predilections of German policy-makers are plain; they will not "print money" and endanger price stability. So what will the Bundesbank do next? The chances are very little different to what has come before. The German authorities seem to have developed a taste for economic management by crisis: the alternative, an open cheque to the wild finance ministries in Rome, Madrid and Athens would be worse.
Crises exert pressure on recalcitrant governments to institute deflation to get costs lower and render their economies more competitive. They are also pushed towards reforming their labour markets, liberalising other markets, breaking up inefficient state monopolies and pulling back on unaffordable welfare.
Many respected economists believe this is mad; but the Bundesbank will continue to say, very politely, "nein".
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