By Ralph Atkins
October 27 2006
SourceOtmar Issing has just played tennis. His kitbag lies neatly next to a corner table in the wood-panelled Stachel restaurant in the university town of Wurzburg, north Bavaria. He is wearing a checked sports jacket over a white shirt with a red-striped tie. This could be a convivial lunch with an athletic professor taking a break from classes.
But I know as we exchange greetings that Issing has been one of the most important figures in European monetary policy over the past two decades. A rigorous academic, he was chief economist at the European Central Bank from its inception eight years ago until June this year, a few months after his 70th birthday. At Germany’s Bundesbank he was a high priest of the economists’ order that stresses the link between money supply growth and inflation. The attendance list at his retirement party-cum-seminar in Frankfurt in March read like a Who’s Who of modern economics.
The Stachel restaurant - one of Germany’s oldest - is hidden away down a passage in the centre of the old city. Only a small sign outside the stone, Italianate building reveals its use. Issing, with his typical precision, had advised me simply to take a taxi for a “six-minute” ride from the station (for the record it took seven).
At a restaurant steeped in history, I had expected traditional heavy, meaty German fare. Not just Issing’s youthful looks are deceptive, however. He suggests we have fish - the locally bred Waller, or catfish, is a house speciality - and a salad starter.
Issing, for whom the restaurant is clearly a favourite when he is showing off his city, wants me to try a local Franconian wine. Soon a Bocksbeutel, or flat-bellied bottle that has been the trademark of Franconian wines since the 1720s, is produced. It is a Wurzburger Stein, from the vines I had seen on the sunny hills from the train. “I have really been looking forward to this,” Issing beams as we raise our glasses. “Zum Wohl!”
Wurzburg has been Issing’s home for almost his entire life, though he globe-trotted a lot as an academic and central banker. “God, or someone else, decided that I should never move more than about 120km.” When he was in his office at the ECB in Frankfurt, Issing looked out on to the same Main river that flows through north Bavaria.
From his childhood he remembers endless days in the Black Forest with his grandfather, a farmer. But the second world war inevitably left the deepest impression. We are both digging into fresh, lightly dressed green salads. Issing recalls how some of his schoolteachers had been Nazis, “telling us how terrible the French are - and across the Channel was even worse”.
When Issing stepped up to the podium to give his thanks at a Frankfurt dinner in his honour on March 16 this year, he realised that it was on the same day - and hour - as Wurzburg had been destroyed by Britain’s Royal Air Force, 61 years earlier, just a few weeks before the allies arrived. Young Otmar had, thankfully, already left for the countryside with a sick brother.
After the war he studied in Wurzburg - classical languages and then economics - and helped look after his three brothers and sister. But afterwards he travelled and found a different world that made him a convinced supporter of European integration.
“For me, being able to travel in Europe was great. And then I studied economics. I was in favour of free markets, open frontiers. So European integration, removing barriers and so on was wonderful for me personally, politically and from my economic understanding.”
When it came to European monetary union, he baulked. The Bundesbank, which with its strict anti-inflation policy had created the conditions for Germany’s postwar Wirtschaftswunder or “economic miracle”, adopted a famously sceptical tone. “I was afraid it would come too soon,” he explains. “I had studied classical languages for a year. The idea that a Roman merchant could travel from Rome to Londinium and pay all the way using his denarii was great.” But he worried about the lack of flexibility in markets and the co-ordination of fiscal policies.
In the end, Issing argues, European politicians were faced with a terrible choice. The fear was of a repeat of the early 1990s currency crises, which had inter alia seen the Italian lira devalued by 30 per cent against the D-mark (at great cost to German companies over the Alps in Bavaria) and sterling ejected ignominiously from the European exchange rate mechanism. “Which is the bigger risk? To continue the status quo which is unsustainable, or to make the big leap into monetary union? I’m glad I didn’t have to take this decision. This was very courageous.”
The launch of the euro, a currency without a government, “is an experiment, still”, he maintains. “I never stopped warning that it is not yet on absolutely safe foundations. This is not to undermine the idea - quite the opposite. We have to be clear about the weaknesses.”
I wonder aloud whether Issing was too much of the textbook economist. Issing is about to refute the idea when he remembers, with a laugh, that the 14th edition of his Introduction to Monetary Theory is about to appear. “I couldn’t resist - the editor urged me,” he chuckles. Among the additions is a section on “perceived inflation” - rises in prices perceived by consumers but not borne out in the official inflation measures, such as occurred after the launch of euro notes and coins in January 2002.
The Waller arrives, a good half metre long, lying among the vegetables in which it was cooked and shown off by the waitress on its metal platter. The delicate white flesh is shared between our plates, and served with boiled potatoes, creamed horseradish, lemon and melted butter. The tastiest morsel, from the cheek, is laid to one side of the plate. Issing says I should try that first. It melts in the mouth. “The fish must swim, and better in wine than water,” he declares, topping up my wine glass.
What conclusion, I ask, does he draw now as an economics professor and as a German eight years after the euro’s launch? “I think it was a good thing, an extremely good thing. Not least due to the fact that not much later Germany lost its role as a model.”
Issing is proud of his country’s successful organisation of this year’s World Cup. “I am glad to see that the Germans have now become normal people... Didn’t you get the same impression?” He is reminded of a discussion with Margaret Thatcher at a dinner in 1995. “She was always suspicious when the Germans - chancellors, ministers, etc - had an idea about something that was not in the obvious interests of Germany.”
But he is appalled at the direction in which German economic policy has headed. A speech he delivered in September when he was awarded the Ludwig Erhard Prize, named after the postwar economics minister, was scathing about German politicians’ pursuit of social justice above economic freedoms and argued that the growth spurt the country is currently enjoying might simply prove an illusion. “I was very critical about what is going on in Germany,” he recalls, revealing a storrisch, or obstinate, side for which Franconians are known among compatriots. “Germans have a dislike of markets, Germans are too risk-averse.”
Does he enjoy acting the hard guy, I wonder? Central bankers, in the words of William McChesney, a former US Federal Reserve chairman, are the guys who remove the punchbowl just as the party gets interesting - only they like to remove it even earlier in Germany. At Issing’s leaving seminar, Mervyn King, the Bank of England governor, conjured up an atmospheric picture of his first meeting with Issing in 1992, arriving at the Bundesbank’s austere Frankfurt headquarters building against the backdrop of appropriately Wagnerian stormy skies.
“Ah, pictures... “ sighs Issing. Behind the scenes, the relationships were often based on trust and frankness, he explains. But central bankers have to choose their words with exceptional care. “This discipline, you really have to make it a part of your personality.”
A year before his scheduled departure from the ECB, his wife had tried to persuade him to stand down. Her strongest argument, he says, was that a slip in his final months might overshadow an otherwise successful career. He resisted, but “I sometimes told myself, ‘Otmar, so far, so good but the last six, five, then four months... be careful.’”
In retirement, he admits frustration at having to sort out faulty computer printers and book flights. “It is a waste of time because I measure my productivity in different things,” What he misses most, though, is the interaction with his able staff of 27 nationalities at the ECB. His new commitments will include starting work next year as an international adviser to Goldman Sachs.
Today Issing relaxes and accepts a dessert. “Normally, for my lunch, I am very disciplined. But we have sinned already,” he says, glancing at the wine. He opts for a plum compote and espresso coffee; I choose the plate of Franconian cheeses.
I can sense his nervous energy. For more than 30 years, the Issings have organised an annual “Issing Olympics” for family and friends. Otmar was a sprinter. When living in Frankfurt, he would use the swimming pool beneath his flat.
Once an Italian colleague at the ECB interrogated him in the cafeteria on how far he swam. “500 metres, I told him.” The colleague asked how long was the pool. “I said, ‘10 metres’ and then he said ‘So that means 50 lengths.’ I said that was correct, and then he asked: ‘Does it happen that you miscount?’ and I said that I did very often, especially when I was thinking about my day ahead. ‘What do you do then?’ he asked. I said that to be on the safe side, I did two or four extra lengths. So he said: ‘Typical German!’”
The afternoon is pressing on and Issing wants to show me the city. Wurzburg’s highlight is its magnificent Residenz palace, Germany’s answer to Versailles. We admire the Marienkapelle and the baroque St Kilian’s cathedral and walk on to the Old Main bridge - reminiscent of the Charles bridge in Prague, with its stone statues - to see the imposing Marienberg fortress on the hill above. In 1525 an unsuccessful peasants’ assault on its medieval walls was planned in the Stachel restaurant.
Issing regrets much of the city’s postwar rebuilding but enjoys the sight of Mediterranean-style pavement cafes spread out across the main squares in the now fading autumn light.
Then he leaves me to continue my day in his city, swings his tennis bag across his shoulder and heads off to find a taxi home.
Weinhaus Stachel, Wurzburg, Germany
1 x catfish (for two people)
2 x double espresso coffee
1 x autumn fruits
1 x Franconian cheeses
1 x bottle Juliusspital Riesling Wurzburger Stein
1 x litre water
Total: €120.80
Copyright The Financial Times Limited 2006