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Business

Pressure Mounts on Bank Chief to Quit Over Perks Scandal

Amid a legal probe and media hostility, calls are growing louder for Germany's embattled Bundesbank chief Ernst Welteke to resign over his acceptance of a luxury hotel stay paid for by a bank he regulates.

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Welteke now regrets his actions.

Speculation is mounting in Germany that the corporate hospitality scandal concerning Bundesbank President Ernst Welteke, the highest-paid civil servant (€350,000 or $423,000 yearly) in the country, could finally claim his scalp. On Wednesday, the executive board of the Bundesbank is to meet to decide the future of their president.

Welteke, a respected central banker and a member of the governing council of the European Central Bank, is under fire for the acceptance of controversial perks two years ago.

The scandal first came to light when news magazine Der Spiegel reported over the weekend that Welteke had spent four nights with his family in Berlin's luxurious Adlon hotel during celebrations of the euro's launch on January 1, 2002 at the invitation of the Dresdner Bank.

He seems to have ignored potential conflicts of interest given that the Bundesbank is one of the bodies that regulates the commercial German banking sector. The Dresdner Bank picked up the €7,600 ($9,200) hotel bill.

Under fire from all sides

Welteke initially reacted angrily to the allegations, countering that his conduct could in no way be deemed improper and instead accused the media of "criticism and misunderstandings."

But he has since changed his stance believed to be prompted by an increasingly hostile media, an apparent lack of political backing and the initiation of a legal probe into the matter by Frankfurt's public prosecutor.

The country's mass-selling Bild tabloid on Tuesday cheekily offered to pay Welteke and his family to spend two weeks in Majorca if he agreed to resign.

Hans Eichel

German Finance Minister Hans Eichel

Even politicians of the ruling Social Democratic Party, of which Welteke is a member, have withheld their support for him. German Finance Minister Hans Eichel said it was up to the Bundesbank to review the case, but added that the conduct would have been unacceptable if Welteke had been a government minister.

On Wednesday, a government spokesman also indirectly hinted that Welteke's resignation might be the right thing to do. "It's understandable and appropriate if Welteke publicly asks himself whether he can expose his family, himself, his office and the institution of the Bundesbank to further public debate," Thomas Steg told reporters, referring to earlier remarks made by Welteke.

Welteke adopts contrite tone

Welteke has since paid back the Dresdner Bank for two nights of the stay, while the Bundesbank has footed the remaining costs. The banker has also confirmed that he, his wife and their three-year-old son, as well as his 25-year-old son and his son's girlfriend, had stayed in the hotel.

On Tuesday, Welteke issued an extensive apology and said he had asked the Bundesbank to look into the case "comprehensively" and "without prejudice." The banker added, "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 a n independent institution."

Controversy threatens Bundesbank image

The scandal however has deeply embarrassed the Bundesbank, which has a reputation for independence from the government and the other commercial banks it regulates.

Experts believe that the bank's executive board now needs to speedily clear up the case in order to limit the amount of damage it might wreck on the bank's image. But that is not likely to prove easy. For while the Bundesbank's employment contract requires board members to behave ethically, there is no explicit code of conduct.

The bank has also said that Welteke could not have breached the so-called civil-service law, barring the acceptance of gifts, because he was technically not a civil servant. However, as member of the Governing Council of the European Central Bank, Welteke has to toe the ECB ethics code, which clearly stipulates that members cannot accept benefits, rewards, remunerations or gifts in excess of a customary or negligible amount.

Scandal stokes public anger

The perks scandal has also touched a raw nerve in Germany, where public anger is mounting over reports of corporate kickback and massive executive bonuses. Recently Chancellor Gerhard Schröder also lashed out against greedy top managers in response to the Mannesmann case over multi-million euro corporate payouts.

Even as calls grow louder for Welteke's resignation, economists have begun speculating about successors with Caio Koch-Weser, deputy finance minister, and Ingrid Matthäus-Maier, board member at development bank KfW tipped as possible candidates.

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