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"Inflation is like toothpaste", the Deutsche Bundesbank's long-standing President Karl Otto Pöhl said in 1980 at the beginning of his tenure. "Once it’s out of the tube, it is all but impossible to get it back in. That’s why it’s best not to squeeze the tube too hard."

Pöhl’s early quotation was an indication of the means he would henceforth use to defend the Bundesbank’s mandate to safeguard price stability. Through his sense of humour, leadership skills, clarity of thought and composure, as well as a particular talent for addressing monetary policy matters in a sometimes unconventional way, he succeeded time and again in bringing the public in Germany and abroad on board for his objectives. His early peers and associates described him as a gifted communicator. "Always treat and inform all journalists with due respect and decency, even if they call at four in the morning", was Pöhl’s guideline for professional communication. As a former business journalist, he knew what his erstwhile colleagues were looking for, having himself worked as an editor at the Volkswirt and DIE ZEIT from 1961 to 1967. This was followed by several years as a state secretary in the German Federal Ministry of Finance, which he left in 1977 to join the Bundesbank – initially as its Vice-President for two-and-a-half years, followed by 11 years as its President. His communication talents were to be urgently needed at the Bundesbank’s helm. The second wave of oil price shocks in the early 1980s, the German monetary union and the creation of the Statute of the European Central Bank were events which marked his tenure as President.

Pöhl was a thorn in the side of policymakers

Pöhl upheld the Bundesbank’s policy of "expensive and scarce money" to maintain monetary stability throughout and thus even managed to dispel misgivings among the CDU and CSU, who were initially expecting a "politicisation" of the Bundesbank under the Social Democrats. Whereas he quickly garnered broad acclaim and great respect among his fellow central bankers in the rest of the world owing to his expert knowledge, policymakers trembled before his clear views. A long-time member of his staff described Pöhl – the second-longest-serving Bundesbank President after Karl Blessing – as "a thorn in the side of policymakers".

In March 1981, Pöhl clashed with then-Chancellor Helmut Schmidt, who regarded the Bundesbank’s restrictive monetary policy as being skewed towards strengthening the D-Mark’s external value and was concerned that the Bundesbank’s high-interest-rate policy would weaken the economy. Pöhl, by contrast, was bothered by public sector deficits and was also critical of the Federal Government’s public investment programmes, which were designed to reduce unemployment. Describing this policy as "curing symptoms", Pöhl argued that creating viable jobs was the more desirable objective. In the following years, he stood his ground and continued to gear the Bundesbank’s monetary policy stance towards the objective of monetary stability.

During the process of German reunification, a great divide opened up between Pöhl and the government of Chancellor Helmut Kohl on the specific shape of the German currency union. The exchange rate between the GDR Mark and the D-Mark was the stumbling block. For stability reasons, Pöhl adamantly campaigned for an exchange rate of 2 to 1. However, his demands fell on deaf ears, and the exchange rate was ultimately set at 1 to 1. In addition, Pöhl harshly criticised the Kohl government’s borrowing. His rift with Kohl was ultimately so irreparable that, in May 1991, he resigned his position as Bundesbank President.

Preserving independence

There are two major monetary policy events which will be linked to the life of Karl Otto Pöhl. Working together with his fellow European central bankers, Pöhl presided over the drafting of the Statute of the European Central Bank (ECB). In this context, he made a considerable contribution not only to maintaining the Bundesbank’s independence but also to modelling the ECB’s statute on this independence. In a recent interview, Pöhl noted that the creation of the ECB as an independent central bank in Europe in the mould of the Deutsche Bundesbank had been a major step towards European integration. In addition, as a state secretary in the Ministry of Finance under Chancellor Helmut Schmidt, in the late 1970s he designed the European Monetary System (EMS), the predecessor of European monetary union. He is internationally regarded as one of the architects of the present-day financial and monetary system and played a key role in the creation of the euro.

Sense of humour and aficionado of art

Pöhl’s strength of character in times of uncertainty was generally recognised. His sense of humour and eye for beauty can still be felt at the Bundesbank today. For instance, in the Bundesbank’s art collection, which houses numerous major works by German artists. His ironic detachment from the austere functional architecture of the Bundesbank’s main building was also a reflection of his eye for the aesthetic. Whenever his visitors on the 12th or 13th floor of the Bundesbank building would admire the Frankfurt skyline, he frequently pointed out to them that, thankfully, none of them could see the Bundesbank from where they were standing.

We bid farewell today to Karl Otto Pöhl, who passed away on 9 December 2014 in Switzerland, his adopted home country, at the age of 85.