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Germany's central bank hit by Welteke scandal

By Patrick Jenkins
Financial Times
Tuesday, April 6, 2004

FRANKFURT -- The executive board of Germany's
Bundesbank will meet on Wednesday morningto
decide the future of their president, Ernst Welteke,
amid mounting calls for his resignation over
controversial corporate hospitality he accepted two
years ago.

As Welteke scrambled to save his career yesterday,
issuing an extensive apology for allowing Dresdner Bank
to pay an7,661 hotel bill for himself and his family, the
board said it had discussed the matter and would now
"examine whether the accusations contravened"
Welteke's "function in law."

At the weekend, Spiegel magazine reported that Welteke
had accepted a four-night stay for himself, his wife, two
sons, and a girlfriend of one of them, at the luxury Adlon
Hotel in Berlin courtesy of Dresdner Bank, ignoring
potential conflicts of interest. The Bundesbank is one of
the bodies that regulates the German banking market.

Welteke, a respected central banker, struck a contrite
tone in his statement, after he failed to secure the backing
of the government and was sharply criticised by the German
media for initially dismissing the story. He said: "I deeply
regret that in connection with the invitation by Dresdner
Bank and my first reaction to public commentary about it,
the impression has arisen that I would not abide by the high
standards to which the Bundesbank is obligated as an
independent institution."

A Bundesbank spokesman added: "He is no longer ruling
out resignation." Central bank insiders said Welteke's chances
of survival had been hit hard by the hostile line of the media,
the absence of political backing, and the initiation of a probe
by Frankfurt's public prosecutor for inappropriately accepting
a favour.

Bild, the populist German newspaper,stoked the controversy,
by mischievously offering to pay for Mr Welteke and his family
to spend two weeks in Majorca, if he agreed to resign.

The Bundesbank said its board wouldlook at the facts of the
incident, and whether they broke the law or the ethical code
of the European Central Bank, on whose governing council
Welteke sits as Germany's representative. Welteke would
not be present at the board meeting, the Bundesbank said.

The bank said he could not have broken the so called
civil-service law, barring the acceptance of gifts, because he
was technically not a civil servant. However, not complying
with the spirit of the law could be problematic. The ECB
ethics code says governing council members must not
accept gifts "in excess of a customary or negligible

Welteke's initial attempts to dampen the scandal backfired
on Monday. Although he and the Bundesbank between them
repaid the money in question to Dresdner Bank, he refused
to apologise and accused the media of "criticism and
misunderstandings." Even politicians from within the Social
Democratic Party of which he is a member have withheld
their support. Hans Eichel, finance minister, implied
criticism when he said: "As regards the federal government,
according to our code of conduct such things aren't

Some bankers said Welteke was the victim of growing public
resentment at well-paid public figures, most recently Klaus
Esser of Mannesmann and Josef Ackermann, chief executive
of Deutsche Bank, prompted by a growing divide between
the economic cutbacks hitting normal people and the
rewards of the elite.

As the pressure grew on Welteke last night, economists
began speculating about possible successors. Caio
Koch-Weser, deputy finance minister, and Ingrid
Matthus-Maier, board member at development bank KfW,
were widely rumoured as possible candidates.


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