Two disparate witnesses called by Paul Tucker, former Bank of England deputy governor, in his searching examination of the political and economic powers of central banks, are Josephine Witt and Mervyn King, who have both voiced qualms about the overweening clout of monetary decision-makers.
Witt is the youthful protester who famously disrupted a 2015 press conference with Mario Draghi, European Central Bank president, with a protest against the ECB’s ‘dictatorship’, particularly in relation to the hardships of debt-ridden southern Europe. King, a colleague of Tucker’s as former governor of the BoE, opined with trademark sarcasm in a central banking debate in Basel 2013 that, ‘If central bankers are the only game in town, I’m getting out of town!’
The two comments go to the heart of Tucker’s 600-plus-page tome Unelected Power, ranging over the risks of untrammelled growth in central bank influence after the 2008 financial crisis – and the need to constrain them in a series of agency agreements fully intertwined into the fabric of elected government.
Tucker is at his best when assessing the different historical roots of these accumulated powers, delving back to the history of Plato’s guardians, the elite caste of counsellors embedded into the 400 BC Athenian city-state. His recipes combine a need for public scrutiny, firm rules and acceptance that, when things go wrong, unelected officials as well as politicians need to accept criticism and take responsibility.
He draws some telling parallels with the judiciary – which as he points out in the UK has had to face its own jurisdictional and budgetary struggles with the executive – and the military, two organs to which the government devolves exceptional powers.
All three arms of state are given still greater authority at times of crisis; governors, as Tucker drily observes, can always be found at the scene of financial disasters.
Tucker points out central banks’ exceptionalism. With the extension of their sway over commercial banking as well as their large-scale government bond purchases, central banks now feature in every ‘functional manifestation’ of the state – fiscal and regulatory matters, service provision and emergency measures. Most other state entities such as public hospitals, the armed forces, police or utility regulators are in just one of these categories.
Tucker’s self-appointed task is to mitigate the inevitable conflicts of, and set a framework for, these multiple roles. He has accumulated in an intellectual assembly line which gains momentum (and subclauses) during the book, a set of design precepts for ‘delegation to independent agencies insulated from day-to-day politics’. This includes a great number of well-codified points connected to their purpose, procedures, principles, transparency and accountability, and emergency powers.
All this is sensible, and fits in relatively well to the complex, committee-laden framework of delegated responsibility, accountability and competence that has grown up in the UK since the upsets 10 years ago. He looks to the traditions of the US founding fathers, writing that his principles should embody the drive for efficiency of an Alexander Hamilton, the fragmentation of power favoured by James Madison and the ‘voice for the people’ of a Thomas Jefferson.
Where the book could do more would be to explain in detail some of the case studies in which Tucker has been involved in the past 20 years that have either led to major accidents or to changes in structure, or both. Here, for understandable reasons, Tucker exercises the central bankers’ self-restraint that he says should one of their hallmarks (along with acknowledgement they are neither maestros nor celebrities.)
Tucker reserves some of his most intriguing judgments for the ECB, because it serves an incomplete constitutional project for which it has become, to the bank’s discomfort, the guardian. Anyone who doubts this should read Vítor Constâncio’s valedictory address last week in which the ECB vice-president (stepping down at the end of May) referred to monetary union as an arduous ‘Odyssean journey’ and took aim at ‘some naïve illusions’ behind the euro’s ‘noble goals’ 20 years ago.
Dwelling on US legislation aimed at corralling the Federal Reserve, Tucker says many Americans may not be aware of the challenge to the ECB’s ‘crisis innovations’ in Europe’s constitutional courts. The battle may be warming up. The European Court of Justice is preparing its decision on some plausible arguments, now available in English, by the German constitutional court that could heavily constrain the Bundesbank’s participation on present and future quantitative easing. All this will be aired in a public hearing in Luxembourg on 10 July.
Tucker has authored what is possibly the longest ever book by an ex-central banker. Yet some chapters have yet to be written.
David Marsh is Chairman of OMFIF.