April 8 (Bloomberg) -- The Bundesbank is resisting pressure from the German government to install Deputy Finance Minister Caio Koch-Weser as president to replace Ernst Welteke, a person familiar with the matter said.

Chancellor Gerhard Schroeder was dissatisfied with Welteke, 61, even before the Spiegel magazine reported that Dresdner Bank AG had paid for a 7,661-euro ($9,328) hotel stay for Welteke and his family in 2002, said the person, who spoke on condition of anonymity. Bundesbank spokesman Johannes Korz and Finance Ministry spokesman Stefan Giffeler declined to comment.

The government urged Welteke to resign today, saying he must ``act responsibly'' and calling for a ``clear decision'' from the Bundesbank, according to an e-mailed statement from Finance Ministry spokesman Joerg Mueller. Both Schroeder and Finance Minister Hans Eichel want Koch-Weser to become Bundesbank president, a government official said.

``The biggest problem is that the government has intervened massively in the matter,'' said Holger Fahrinkrug, an economist at UBS AG in Frankfurt. ``It looks as though those people who appointed Welteke had expected more support for fiscal policies from him than they received.''

Schroeder's government appointed Welteke, a member of the Social Democratic Party, as Bundesbank president in 1999 after winning national elections the year before. Welteke's contract runs until 2007, the year after national elections in Germany.

Stagnant Economy

Under Welteke, the Bundesbank hasn't backed the German government's demands to put more emphasis on using monetary policy to spur economic growth. Germany's economy has stagnated for the past three years, boosting unemployment and contributing to a slump in popularity for Schroeder and the SPD.

Welteke, who agreed yesterday to take a leave of absence, is under investigation by Frankfurt prosecutors on suspicion that the hotel stay represented an illegal gift from Dresdner Bank, one of the German banks that the Bundesbank helps oversee. He has repeatedly said that he doesn't see any reason to resign.

The German central bank named Vice-President Juergen Stark, 55, to temporarily assume Welteke's duties, which include representing Europe's biggest economy at the Frankfurt-based European Central Bank's interest rate meetings each month. The ECB next meets to set rates on May 6.

Stark is a member of the opposition Christian Democrat Union and lost out to Welteke, a member of Schroeder's Social Democratic Party, the last time the job became available.

IMF Candidate

Koch-Weser, 59, a former World Bank official who was once a candidate to head the International Monetary Fund, belongs to no political party, unlike his former Bundesbank President Hans Tietmeyer, a Christian Democrat, and Welteke.

Unlike Welteke and Stark, Koch-Weser has no experience running a central bank.

The Bundesbank, whose board met for more than eight hours yesterday, said it didn't have sufficient grounds to demand Welteke's resignation. The bank didn't say how long the leave will be or whether Welteke will be paid during that time.

Welteke, who earns 350,000 euros a year at the Bundesbank, this week repaid Dresdner Bank half of the four-night hotel bill at Berlin's Hotel Adlon that he incurred together with his wife, two sons and a girlfriend of one of the sons at an event celebrating the introduction of euro notes and coins in 2002. The Bundesbank repaid the other half of the bill.

Schroeder, who turned 60 yesterday, is currently on vacation in Italy and has been in contact with the government about Welteke, his press office said.

Before the advent of the euro, the Bundesbank was one of the world's three most powerful central banks. Attracted by Germany's low inflation record and strong currency, European countries pegged their exchange rates to the deutsche mark and moved interest rates in line with the German central bank.

To contact the reporter for this story: John Fraher in Frankfurt at jfraher@bloomberg.net.

Last Updated: April 8, 2004 08:49 EDT