The subtle language of central bankers
Wikileaks show how Mervyn King is quite an operator
by David Marsh
Mon 6 Dec 2010
Not everything that central bankers say should be taken at face value. Anyone in charge of issuing paper currencies – that most virtual and improbable of concepts, lusted after by all, manipulated by a few, understood by no-one – has to have more than a thimbleful of actor’s blood coursing through his veins. Take Mervyn King, for example, governor of the Bank of England. In February 2010 he tut-tutted to Louis Susman, the American ambassador in London, that the then Conservative opposition leader and now prime minister David Cameron and his shadow chancellor of the exchequer George Osborne were a bit on the young side and - as untried politicians – might not have the experience and the aptitude to carry out urgent budget cuts should they come to power.
Nine months later, with Cameron and Osborne installed in office after the May parliamentary elections, King and others have not been too amused as revelations of his behind-closed-door conversation have spread around the world thanks to Wikileaks. But it would be wrong to interpret his remarks as outright criticism of two men whom King well knew were likely to be future leaders. Far more likely that King – a courteous, scholarly, rather shy man - was using his interview with the ambassador to show that, as a master of money, he could make judgments on far more sweeping matters than the future growth rate of the monetary aggregates. In short, as well as being a mere central banker, he wanted to show he was a versatile man of many talents, something of a star player.
We see plenty of other cases where central bankers display instincts and leanings that they do not necessarily feel. In the vexed question of Economic and Monetary Union, many officials in Europe have been reluctant to say out loud what many were really thinking. In the early years of the single currency, people such as Jean-Claude Trichet, president of the European Central Bank, already saw visible warning signs - such as rising current account deficits and lowered competitiveness in the peripheral countries of Europe. But they certainly didn’t speak much about these signals in public.
The reason? Experienced monetary policymakers such as Trichet knew from the start that that EMU was viewed with hostility by many in the Anglo-Saxon world. This was partly for mercantilist reasons – the British and Americans saw EMU (more clearly than the Continentals) as a means of keeping down the value of the “Euro-ised” D-Mark and therefore boosting German exports. And partly it was a question of rivalry with the dollar, which the US establishment was not keen to promote. Mr Trichet was not enthusiastic about telling the rest of the world about the euro area’s weak spots – which is why, on ceremonial occasions such as euro anniversary speeches (of which there were many), he tended to concentrate on positive views.
As long ago as 1994, legendary speculator George Soros named this psychological displacement phenomenon ‘the emotional amplifier’ – noting that the then Governor of the Banque de France (a certain Jean-Claude Trichet) tended to apportion responsibility for a series of monetary mishaps to factors that were actually not to blame. ‘Who would have thought,’ Soros asked rhetorically, ‘that respected officials like the newly appointed head of the Banque de France really believed in an Anglo-Saxon conspiracy to destroy the Franco-German alliance?’
Thanks to the work of George Soros, we know that the seemingly derogatory statements of the British central bank governor on the young Conservative politicians had their roots not in monetary policy but in psychology. In some ways, though, the Wikileaks revelations may be useful for King. In recent weeks he had been criticised by some British observers – including members of the Bank of England Monetary Policy Committee - for allegedly being excessively close to David Cameron on the latest budget cuts strategy. Now you have the proof that the ultimate guardian of British monetary sasnctity, far from exuding a pro-Cameron bias, really does maintain a critical distance to the new UK prime minister. A seasoned central bank governor will always need to look at everything from at least two sides. Now, thanks to Wikileaks, we know that – in Britain at least – he does.
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