New normal for Europe’s central bankers is getting kicked around

The headquarters of the European Central Bank. (Bloomberg pic)

FRANKFURT: Central bankers across Europe are finding that the golden era in which they were revered has passed.

More than a quarter of a century since European Union members agreed to keep interest rates free from political interference, monetary authorities are increasingly becoming the whipping boys of elected officials. Like US President Donald Trump, politicians from Rome to London are happy to drag central bankers through the mud.

“The great days of central bank independence are behind us,” said former Bank of England policy maker Charles Goodhart, adding he thought the attacks will intensify. “The central bank, far from being seen as the only game in town to keep us from collapsing, is going to be seen as an enemy of the people.”

European Central Bank President Mario Draghi sounded the alarm in October that independence is under attack. It fell on deaf ears.

A decade after the crisis erupted that ultimately vastly expanded their remit, central bankers find themselves forced to tread cautiously, balancing the need for public accountability against the minefields of a political space where scrutiny can morph into abuse.

“It’s important to see this as part of the more general shift against technocrats, against expertise,” said Adam Posen, a former BOE official who now serves as president of the Peterson Institute for International Economics.

“The next recession, which is coming, is unlikely to be fully offset by monetary policy. So that may increase the pressure on central banks.”

The operational independence of the ECB itself remains unassailable because of the international nature of its creation. Its inspiration, Germany’s Bundesbank, is also still hallowed on its home turf.

But elsewhere in the EU, central banks are increasingly seen as fair game. What follows is a catalogue of the areas where institutions are feeling the heat.

Policy interference

In Italy, deputy premiers Matteo Salvini and Luigi Di Maio criticised the central bank’s record on bank supervision.

Five Star party ministers reportedly forced the cabinet to postpone a decision on renewing the term of a Bank of Italy official, and populists urged a law stating that the central bank’s 91 billion euros (US$104 billion) worth of gold belongs to Italians.”

Bank of England Governor Mark Carney has been accused by pro-Brexit politicians of overly pessimistic forecasts and bias against the result of the 2016 referendum.

And in Bucharest, Romania’s central bank is up in arms over a “greed tax” on assets linked to the interbank rate, which it says hampers monetary policy. The tax was enacted to plug a gaping hole in the budget.

Separation of powers

Slovakian Finance Minister Peter Kazimir decided to leave politics and take over at the central bank upon the early departure of its leader. He starts in June.

It’s a route already taken by Luis de Guindos, who took over the ECB vice presidency directly from the Spanish finance ministry.

Dirty tricks

Yannis Stournaras, the governor of the Bank of Greece, has been the target of repeated government mudslinging. The governor has denied any wrongdoing.

The latest scandal concerns a leaked phone conversation between the governor and a minister, who demanded that Stournaras probe loans to opposition politicians, parties and the media.

Meanwhile in Poland, the ruling populists have cracked down on what they say is over-generous pay at the central bank, passing a law limiting salaries of senior staff.

The monetary authority was forced to publish salaries – revealing that Governor Adam Glapinski’s closest assistant earned about three times the base salary of the prime minister.

Jaroslaw Kaczynski, leading of the ruling party, said he “would want to talk” with Glapinski about the matter and that he would “ greatly resent it” if such salaries were the governor’s idea.

Fought the law

Perhaps the most spectacular criminal probe is Latvia’s central bank chief Ilmars Rimsevics, charged with taking 250,000 euros in bribes from a lender linked to money laundering. He denies wrongdoing, and on Tuesday, the EU’s highest court overturned his suspension.

The Court of Justice said Latvia last year illegally prohibited Rimsevics, who is also a member of the ECB Governing Council, from performing his role.

He’s not the first to come into the crosshairs of investigators.

Slovenia’s Bostjan Jazbec stepped down amid a police investigation into the central bank’s role in a government bank bailout, and Cyprus’s government started proceedings in 2015 to dismiss Chrystalla Georghadji alleging a conflict of interest with regards to her estranged husband.