Karl Otto Pöhl - obituary

Karl Otto Pöhl, the former president of the Bundesbank who has died aged 85, was the embodiment of German monetary rigour and a key voice in the design of the single European currency.

At the helm of the German central bank from 1980 to 1991, Pöhl was a powerful figure in monetary dramas of the era such as the negotiation of the Plaza agreement in New York in 1985 to restrain the value of the dollar and the Louvre Accord of 1987, which aimed to stabilise volatile currency markets. At home and abroad, he was an implacable advocate of the role of central banks as independent institutions, focused on price stability and free from political interference.

When the Delors Committee convened in September 1988 to draft a plan for economic and monetary union (EMU) — with the creation of the Euro at its centre — the strongest voice at the table beside European Commission president Jacques Delors was that of Pöhl, who proposed his own blueprint for a European central bank modelled precisely on the Bundesbank, with a strong mandate to combat inflation. He also called for binding rules on member nations’ budget deficits.

Nigel Lawson, the British chancellor, and Robin Leigh-Pemberton, the governor of the Bank of England, had rarely found Pöhl on their side in previous encounters. Pöhl was adamant, for example, that the Deutschemark should not be used as a reserve by other nations, whereas Lawson believed flexible monetary co-operation could be advanced in Europe by holding each other’s currencies. When Leigh-Pemberton rang Pöhl in late 1987 to tell him the UK would buy Deutschemarks rather than dollars to deflect upward pressure on sterling, “he received [Lawson wrote] a flea in his ear and was told in no uncertain terms that we could not do so”.

Nevertheless, there was hope that Pöhl might support the British position in the Delors Committee, which was to oppose an early treaty amendment paving the way for EMU and keep all conclusions as tentative and open to unpicking as possible. Pöhl was understood to have shared doubts about EMU with Leigh-Pemberton in private, and it was well known that the Bundesbank was unhappy about its own potential downgrading in the new system. But having at first indicated willingness to help tone down the report, Lawson continued, “true to form [Pöhl] did not stand firm… he never really engaged himself, at the end of the day shrugging his shoulders and going along with Delors”.

Karl Otto Pöhl was born in Hanover on December 1 1929, the son of a municipal clerk. He worked as a sports reporter to help pay for studies in economics at the university of Göttingen, where he graduated in 1955, and began his career as a researcher in an economics institute in Munich. In the 1960s he wrote for the weekly Die Zeit and other periodicals, and worked for the federal association of German banks.

Pöhl had been a member of the centre-Left Social Democratic Party since his student days. After its leader Willy Brandt became chancellor in 1969, Pöhl was recruited to work in the economics ministry, where he began a meteoric rise. Transferring to the finance ministry, he held the posts of under-secretary for international monetary policy, head of the money and credit division, and state secretary (equivalent to permanent secretary).

_{Pohl with John Major, chancellor, in the state drawing room of No 11 Downing Street, November 9 1990}

He became close to the finance minister, Helmut Schmidt, who succeeded Brandt as chancellor in 1974, and sometimes acted as Schmidt’s personal representative at international meetings. In contrast to Lawson’s later aspersions, Pöhl was warmly recalled by the Labour chancellor Denis Healey as “an urbane and relaxed ex-journalist who always seemed to be on holiday” – and as a supporter of the IMF bail-out of the British government in 1976.

It was Schmidt who nominated Pöhl to be vice-president of the Bundesbank in 1977, and president two years later – though some accounts say Pöhl was not Schmidt’s first choice for the top job. Expectations that their friendship and Pöhl’s own Leftward leanings would lead him to support Schmidt’s expansionary economic policies were rapidly confounded.

Pöhl asserted his independence from the start, rejecting calls for lower interest rates and devaluation of the Deutschemark, and criticising the rising federal deficit. At a time of painful recession and high unemployment, Schmidt was heard to complain that real German interest rates were as high as they had ever been “since the birth of Christ”. When the US Federal Reserve at last began to cut rates in 1982, Pöhl seemed reluctant to keep pace. An increasingly public stand-off with the Bundesbank contributed to the disintegration of Schmidt’s coalition in October of that year, when he was succeeded by the conservative Helmut Kohl — who reappointed Pöhl to the Bundesbank presidency in 1987.

Pöhl and Kohl eventually fell out, however, over the terms of German reunification. Kohl’s insistence on the exchangeability of the Deutschemark and the East German mark at a rate of one to one – a parity which in Pöhl’s view “did not correspond to economic reality” – provoked Pöhl’s resignation from the Bundesbank in May 1991, mid-way through his second eight-year term.

After leaving the Bundesbank, Pöhl was a partner in the private bank Sal Oppenheim, an adviser to multinational companies including Rolls-Royce, Royal Dutch Shell, Unilever and the private equity firm Carlyle, and a member of the Group of Thirty, an influential body of economic advisers.

He continued to offer forceful opinions on monetary issues from time to time. In February 2009 he told an audience at the LSE in London that if Germany decided to bail out other members of the Eurozone it would open “a Pandora’s Box” and “would be like jumping into a swimming pool without water”. But he also rejected the idea that the Eurozone might break up, saying that under-performing members should change their domestic policies to regain competitiveness, because “there is no way out”.

In his later years, Pöhl made his home in Zurich. He was twice married and had four children.

Karl Otto Pöhl, born December 1 1929, died December 9 2014