Carney-Style Experiment Comes to ECB as Irish Send in a Briton

(Bloomberg) --

Just weeks before the European Central Bank gets its first-ever female president, another milestone for the institution is being set by Ireland.

Gabriel Makhlouf, a Briton who was a top civil servant in New Zealand, becomes the Irish central bank chief this week. He is the ECB Governing Council’s first member who isn’t a citizen of the country appointing him.

While Christine Lagarde’s impending ECB presidency is unprecedented, that role has citizenship restrictions. Ireland’s appointment of a non-national echoes the U.K., which hired Mark Carney, a Canadian, to run the Bank of England.

“In Ireland, we are used to the idea of having an outsider in important roles,” said Eoin Fahy, chief economist at KBI Global Investors in Dublin. “The fact he’s an outsider might even be a slight advantage. Sometimes they can take more of an objective view.”

Ireland has hired foreign central bankers before, though not a governor, and that latest move may have raised eyebrows. ECB officials contacted the government with qualms including Makhlouf’s U.K. citizenship during Brexit, the Irish Times reported last month, without saying where it got the information. Fahy finds such concerns “absolutely not” justified.

An ECB spokesman said the institution isn’t involved in appointing national governors. Ireland’s finance ministry said it received no objection from the ECB.

Career Official

Makhlouf’s own career resembles those of many ECB colleagues, who are often central bank or finance ministry officials. A career U.K. civil servant who became an aide to former prime minister Gordon Brown, he was appointed chief economic adviser to New Zealand’s government in 2011.

“It’s a good idea to bring in outside technical expertise, but it’s not without its problems,” said Stefan Gerlach, a Swedish-born former Irish central bank deputy governor. He reckons it’s hard for a foreigner to be governor.

Carney hasn’t had it easy dealing with Brexit, though his origins haven’t often featured in criticism. Aside from him, a rare example of a foreign governor was Stanley Fischer, who was Bank of Israel chief while a U.S. citizen.

Panicos Demetriades says being an outsider means you can be “completely independent,” but there are drawbacks. A U.K.-based academic who became an ECB policy maker as Cyprus’s governor, he resigned under political pressure.

“It can be a minus in critical situations when the whole system gangs up against you,” he said. “It was an advantage until I had to deal with a crisis.”

Mahklouf already had a taste of that. In June he escaped dismissal in New Zealand for failing to take responsibility for a security breach around budget information. Irish opposition parties wanted his appointment to be suspended.

He survived but will soon find himself at the eye of an economic storm. Makhlouf’s first Governing Council meeting is Sept. 12, with the ECB due to discuss a stimulus package.

--With assistance from Paul Gordon.

To contact the reporters on this story: Dara Doyle in Dublin at ddoyle1@bloomberg.net;Catherine Bosley in Zurich at cbosley1@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Craig Stirling, Zoe Schneeweiss

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