(Bloomberg Opinion) -- For the past eight years, the European Central Bank has looked very much like a one-man show. President Mario Draghi appeared so dominant that investors quickly learnt to dismiss disagreements as a little nuisance they could easily brush aside.
But with just over a month before “Super Mario” steps down, dissenting voices on the central bank’s top-brass Governing Council are multiplying and becoming ever louder. The question is whether this is just a small break before Christine Lagarde takes over in November, or the start of a new normal, with a more balkanized and self-contradicting central bank.
There is an inherent tension at the heart of every collegiate body, and the ECB’s Governing Council is no exception. It is in the interest of transparency and accountability that members should feel entitled to express their views openly. The public can see there is an open debate over measures that affect their daily lives, rather than assuming there is no place for dissent.
However, a cacophonous council makes it much harder for the ECB to convey its message. And since communication has become increasingly important in a central bank’s toolkit — for example in convincing consumers and investors that interest rates will not go up in the near future — policy actions risk becoming less effective in the event of excessive disagreements.
Draghi’s leadership style at the ECB has often been of the take-no-prisoner kind. His announcement in July 2012 that the central bank would do “whatever it takes” to save the euro came as a surprise to many on the governing council. Draghi strongly believes that the central bank must be united in the message it delivers to the public. In his valedictory hearing at the European Parliament this week, he recalled how in his nearly six years as governor of the Bank of Italy he never disagreed publicly with any decision taken by the ECB. “The form in which this dissent is made known is very important,” he said. “This communication ought to be carefully drawn in order not to undermine the effectiveness of our decisions,” he added.
The aftermath to the ECB’s decision this month to restart quantitative easing was nothing of the kind. Klaas Knot, who runs the Dutch central bank, took the very unusual step of publishing a note explaining his dissent on his own national bank’s website a day after the decision. Knot later said that the Governing Council knew of his plan to do so. “There was wide consensus that it was better to be transparent about it than to let it develop into anonymous hearsay in the press,” Knot told the Telegraaf newspaper. “Experience has taught us that such differences of opinion never stay behind closed doors.”
Bundesbank President Jens Weidmann took to the Bild newspaper, Germany’s best-selling tabloid, while the governors of French and Austrian central banks also voiced their dissent. Others, including Finland’s Olli Rehn, backed the decision publicly.
Some of the criticisms clearly smack of a late revenge against a man who often chose to run the ECB in splendid isolation. As such, they may well die down once a new president is in place. It is also possible that the decision to restart quantitative easing was less clear-cut than others the ECB has taken in the past, hence prompting a broader debate. But a genuine concern is that, as Draghi goes, the ECB will become engulfed in endless public spats between its more hawkish and dovish factions. This would be very damaging at a time when the euro zone needs the full strength of its central bank (as well as fiscal support from some governments) to move out of a dangerous slowdown.
A way forward would be for national central bank governors to take a more nuanced attitude when they speak to the public. They should feel free to express their views, even when they are in a minority. Only this can make sure the ECB does not appear a closed shop. As Philip Lane, the ECB’s chief economist, said last week, it would be “fake to suppress the fact that it’s a range of views.” But, in the spirit of collective responsibility, council members should also explain why the central bank took the decision it did. National central banks still hold an overwhelming weight in their own individual country, and they cannot give up their role as spokespeople of the ECB’s decisions.
From Germany on monetary policy to Italy on banking supervision, there have been too many cases of central bankers sniping at the ECB. An end to friendly fire would be the best welcome gift for Lagarde.
To contact the editor responsible for this story: Melissa Pozsgay at mpozsgay@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Ferdinando Giugliano writes columns on European economics for Bloomberg Opinion. He is also an economics columnist for La Repubblica and was a member of the editorial board of the Financial Times.
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