The Bundesbank's traditional role and reputation are in a state of flux, writes Derek Scally.

While most of us have only two things in life we can be sure of - death and taxes - Germans once had a third: the deutschmark, and its guardian, the Bundesbank.

The euro launch party in Berlin on New Year's Day 2002 signalled the end of the mark and now, two years on, could also signal the end of the Bundesbank as Germans know and love it.

At midnight euro banknotes were flashed before the television cameras by finance minister Mr Hans Eichel and Bundesbank president Mr Ernst Welteke. The latter was in good spirits, despite having just lost his currency and a large part of his importance. For a few hours' work to launch the euro, event organiser Dresdner Bank was paying for his four-night stay at the five-star Adlon Hotel for himself and his family.

Far away from the Adlon, in Punchestown last weekend, the €7,661 bill for the Berlin break returned to haunt him. The story would be big news if it involved a leading German politician. But the Bundesbank is a moral authority in German life, which explains why this week's media coverage would have you believe that Chicken Licken's worst fears have come true and the sky really has fallen in.

Germany's Bild tabloid led the pack yesterday with an editorial headline plucked from the musical Chicago: "Whatever Happened to Class?" "The Republic is mourning the death of a near, dear friend: the death of class in certain circles," it mocked. "Its passing was not unexpected. Its chances of survival were low. Materialism and selfishness, greed and corruption took over its habitat." Details of the stay in the €1,700-a-night hotel suite are outrageous for most Germans facing belt-tightening reforms.

But tempers rose at Mr Welteke's initial reaction: "When I spend the New Year on a break, I like to stretch it out a bit." He made things worse by trying to be big about it, paying half the bill himself and letting the Bundesbank (read taxpayer) pay the rest.

Of more importance, though, is the long-term effect of its president's poor judgment on the Bundesbank. Mr Welteke, once a grey man of the business pages, is now the "Party Banker" from page one of Bild.

"A Bundesbank president who permits himself to become a derisory figure in the tabloid press has lost his serious reputation as guardian of a currency," says Mr Patrick Welter, columnist with the Frankfurter Allgemeine newspaper.

More serious, though, is the long-term effect of the scandal on the Bundesbank and its cherished independence.

The central bank's independence was the corner stone of its foundation in 1957, to avoid a repetition of Germany's pre-war history of hyperinflation through misuse of the currency printing presses. The Bundesbank board delivered a startling show of independence and defiance on Wednesday evening when, after seven hours of talks, it snubbed Berlin's resignation calls and asked Mr Welteke to go on leave instead.

The board said there were insufficient grounds under the Bundesbank law for him to be dismissed and decided to let a criminal inquiry into the matter take its course.

The government in Berlin dismissed the decision as "inappropriate" and urged Mr Welteke to take the "necessary consequences".

Stripped of its key functions by the European Central Bank, one of the Bundesbank's key remaining tasks was the supervision of the German banking sector.

The revelation that the bank's president let a private bank he is supposed to supervise on a day-to-day basis pay for a New Year break for himself and his family is like hearing that Santa Claus spent the New Year in the Canaries courtesy of Mattel.

By merely suspending Mr Welteke, the Bundesbank board may have stuck to the letter of the Bundesbank law and defended its independence. But in doing so it has kept at the helm a man with rapidly dwindling public respect.