Weidmann awarded International Prize by Hayek Foundation

Bundesbank President Jens Weidmann has been awarded the International Prize of the Friedrich-August-von-Hayek Foundation at an award ceremony attended by around 300 invited guests in the south German city of Freiburg. Other laureates were former Federal President Roman Herzog, who received the Honorary Prize for his life's work, while Udo di Fabio, former judge of the Constitutional Court, was awarded the Foundation's Publishing Prize. The honour of awarding the prizes went to former Federal President Horst Köhler.

Federal President Joachim Gauck and President of the Federal Constitutional Court Andreas Vosskuhle delivered laudatios for Herzog and di Fabio. In a reference to the Paris terrorist attacks, Federal President Gauck cited the words of Friedrich August von Hayek, the economist who gave his name to the prizes: "It is particularly under adverse conditions that liberty develops new strength." This confidence in the power of liberty was what Germany and Europe now needed more than ever, he said.

"Tireless commitment to stability-oriented monetary policy"

The Bundesbank President was honoured for "steadfastly advocating the consistent implementation of theoretical insights in practical market-based policymaking". The Foundation also highlighted Mr Weidmann's "tireless commitment to stability-oriented monetary policymaking by central banks as well as the compelling stance he has taken against excessive government debt and his advocacy of fiscal policy soundness and sustained economic growth."

Mr Weidmann's laudatio was delivered by Otmar Issing, former chief economist and Executive Board member of the European Central Bank (ECB). In his speech, Mr Issing, who was also a member of the Bundesbank's Directorate in the 1990s, recalled how the Bundesbank had built up a strong reputation among the German public since its establishment for its stability-oriented policymaking and explained how its role has evolved since the launch of the euro. "If, in this drastically transformed setting, the Bundesbank is continuing - and I would say, with renewed vigour - to play a major role in international foreign exchange policy and in European monetary policy, then that is down to its president, Dr Jens Weidmann," Mr Issing said. Turning to the economist who gave his name to the prize, Mr Issing noted that Hayek had underlined the fundamental importance of monetary stability in a liberal society and had cautioned against political influence being exerted over central banks – just like the Bundesbank President was doing today. "Jens Weidmann warns tirelessly against the politicisation of central banks," he said, adding that it must indeed be alarming to see central banks around the world being drawn into the political sphere, failing to resist its embrace and apparently even being urged to take on a greater role beyond monetary and foreign exchange policymaking. Mr Issing warned that such developments could take their toll on central banks if the collateral damage became evident. "Overstretching the central bank's mandate in Europe risks jeopardising the structural soundness of the entire monetary union for the unforeseeable future," he cautioned.

Eye to eye with early Hayek

In his acceptance speech, Mr Weidmann said that the award was primarily in recognition of the Bundesbank's traditional stability-oriented stance. He told the audience how Hayek had underlined the inextricable link between liberty and responsibility. "This liability principle, fundamental as it is for a market economy, has been eroded over the past seven years of crisis," the Bundesbank President noted, citing the bail-out of banks using taxpayers' money and the assumption of liability for public debt by the community of states to illustrate his point. Much had already been achieved in terms of the Single Supervisory Mechanism (SSM), Mr Weidmann explained, "but the euro area's regulatory framework still needs to be worked on." If the euro area was to prevail once and for all as a union of stability, Hayek's liability principle needed to be thrust back into the foreground, Mr Weidmann pointed out, voicing his backing for the idea of orderly insolvency proceedings for sovereigns.

The Bundesbank President's speech also touched upon the issue of price stability in Hayek's oeuvre. The economist had advocated abolishing the sovereign monopoly of issuing money and leaving it to the general public to use the payment medium of their choice. Hayek did not believe that the government and central bank could safeguard price stability. "This probably won't come as much of a surprise to you, but as a central bank representative, that's not a view I share," Mr Weidmann told the audience. But before Hayek began to champion the denationalisation of money, Mr Weidmann continued, he had regarded independent central banks as the best way of ensuring price stability. On that front, he continued to see eye to eye with Hayek, at least with his earlier pronouncements, Mr Weidmann concluded.