Faithful readers of this column know that I am deeply concerned about the politicization of the European Central Bank (ECB). Lessons from monetary history and piles of academic research support that concern: we simply know that a central bank that listens to what politicians want is bad news for inflation in the medium term.
Such a central bank therefore leads to lower economic growth, because interest rates are higher and uncertainty increases, and to rising inequality.
Opinions differ on whether the ECB is such an irresponsible central bank. Where one person—like me—sees talk about climate policy and the active role the ECB should play in it as something the bank should not be concerned with, another welcomes it because it would be responsible policy. Anyway.
Sometimes, however, the discussion is very straightforward, such as last year when Christine Lagarde, president of the ECB, posted a photo on social media with the EU’s political leader, showing them walking hand in hand through the ECB offices (at the ECB’s invitation!) on the eve of the ECB’s rate meeting. How much clearer do you want it to be? That a central banker would post something like that… I couldn’t believe it, and I still can’t.
Recently, something else happened that supports my concern. The British newspaper Financial Times reported that Lagarde is considering leaving the bank earlier. Her term runs until the end of 2027, but she might already say goodbye to the bank in the spring.
Leaving early is, of course, possible. There can be all kinds of reasons: her health, she no longer enjoys it, or she simply wants to take it easier. But no, Lagarde is considering stepping down early for a very different reason, namely that French president Emmanuel Macron would then still be able to help decide who her successor will be. Macron remains president until the spring of 2027. When you think about that, you realize: this is pure politics. And a central bank should stay far away from politics.
This is not the first time the French have cooked something like this up. The very first president of the ECB was Wim Duisenberg. He did not complete his eight-year term, because after five years he had to step down at the insistence of France. They wanted a Frenchman in that position. By the way, recently the head of the French central bank also suddenly announced that he is stepping down. Coincidence or not, but that also means Macron will appoint the successor—and thus an ECB board member.
Furthermore, leaving the ECB early to give Macron the opportunity to appoint Lagardes successor is incredibly disrespectful to the other EU countries. The bank’s president is—contrary to what France thinks or would like—not appointed by the French president, but by all EU countries. In every capital, this should be seen as a major insult.
The deafening silence in the eurozone is also a bad sign. Recently, there has been a lot of discussion about the independence of the Fed in America and the political pressure on that bank. But let us not forget: many American lawmakers and former policymakers have rallied behind the Fed and have said that the attacks on its independence go too far.
In Europe, all is quiet. We also have an army of former central bankers and politicians here who could have an opinion on the stong indication that the ECB has become a political institution. Yet no one has said anything about it.
And yes, it is true that former Dutch central bank president Klaas Knot is mentioned by many as Lagarde’s successor, alongside current ECB board member Isabel Schnabel, German central bank president Joachim Nagel, and former Spanish central bank president Pablo Hernández de Cos. But then we are just talking about individuals. And however interesting that may be, if we focus on the individuals, we miss the most important point, namely that this is politics of the highest order.
Speaking of individuals: the next ECB president must be someone with relevant experience and no political background. A new experiment à la Lagarde is undesirable. Lagarde, a career politician, was appointed president of the ECB 6.5 years ago. She has therefore had more than 6 years to become a central banker, but she never became one. She has always remained a politician. Not to be repeated.
Edin Mujagić is an economist, manager of the Hoofbosch Investment Fund, and author of the book Turning Point 1971. He writes a monthly ECB Watch for Investment Officer on the monetary policy of the European Central Bank.