Now that the Bundesbank has surrendered the responsibility for setting interest rates to the European Central Bank, it sorely needs downsizing itself, and it's having trouble practicing what it preaches. The 16-member Bundesbank Council-seven directors in Frankfurt and the presidents of the nine Landeszentralbanken, or regional central banks-can't agree on a restructuring proposal, so they've submitted two to the federal government. Bank officials in Frankfurt want to reduce the role and size of the regional central banks; the heads of the regional fiefdoms object.

Although the Bundesbank is widely regarded as overstaffed, with nearly 16,000 employees, neither proposal sees slimming down until 2003 at the earliest. Bundesbank officials on both sides of the restructuring debate argue for maintaining staff levels until well after euro notes and coins are rolled out in 2002. Times are tough for the Bundesbank, which was more important than other European central banks and thus had more to lose.

"This is a culture shock, especially for an institution that had such a reputation," says Otmar Issing, who abandoned the Bundesbank after eight years to join the ECB's executive board. Bundesbankers who were once pursued by reporters now find their speeches ignored. Markets no longer flinch at rumors of a Bundesbank news conference. And the central bank has unexpectedly come under fire from Finance Minister Hans Eichel, who wants to reduce its remaining powers.

In February, Mr. Eichel proposed shifting the task of managing the government debt away from the Bundesbank to a government-owned corporation to save money. Bundesbank President Ernst Welteke, on the defense, argues the debt scheme would open the door to risky management. He has begun a push to expand the Bundesbank's supervisory role to cover insurance and securities as well as banking. "The Bundesbank still has an international reputation and the public's confidence, especially in Germany," he says.

But it has been reduced to acting like any ordinary bureaucracy, scrambling to preserve its size and perquisites, while its reason for being is questioned. The first public hint that Bundesbank bosses were having trouble agreeing on a restructuring plan came last year when then-Bundesbank President Hans Tietmeyer revealed the two competing alternatives. The directorate in Frankfurt favors a centralized board overseeing regional branches. The other proposal, backed by six of the nine regional central banks, calls for preserving the present structure, but shutting down two of the regional central banks-the identities yet to be determined.

Then there's Berlin's regional central bank president, Klaus-Dieter Kuehbacher, who has his own plan: Decrease the number of regional Slash the number of regional central banks to five, with presidents that split their weeks between offices in Frankfurt and the regions. Tietmeyer, to the consternation of some partisans, refused to take sides, and still does. Mr. Welteke endorsed the centralized model in November, at the installation ceremonies for Hans Reckers, who was being sworn in as Welteke's successor as chief of Hesse's regional central bank. Reckers used the occasion to plug the decentralized plan. A month later, six regional central banks escalated the confrontation with a news conference in Hamburg.

"In a Europe of regions, competent regional central banks are needed," the presidents of the Landeszentralbanken proclaimed.

-- The Wall Street Journal