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Analysis
Sensitive decisions on succession

Sensitive decisions on succession

Lessons from central bank-government squabbling

by David Marsh

Tue 3 May 2016

The post-financial crisis extension of central bankers' responsibilities into policy areas overlapping with governments makes them vulnerable to political pressures, especially since these institutions frequently seem to be acting as governmental substitutes. The squabble over negative interest rates between Wolfgang Schäuble, German finance minister, and Mario Draghi, European Central Bank president, underlines how, when governments and central banks point in different directions, sparks can fly.

In view of periodic round-the-world jostling over monetary and financial measures, government decisions on replacing key central bankers when their term of office ends are more than usually sensitive. So it is reassuring that in three important medium-sized countries – the Czech Republic, Malaysia and Poland – governments have been making delicate choices on new governors suggesting their central banks will preserve cherished autonomy.

The tussle between Draghi and the Germans underwent a further twist on Monday. The ECB president, at the annual meeting of the Asian Development Bank in Frankfurt, blamed Germany for generating a new, destabilising ‘savings glut’ through persistent high current account surpluses.

This was an implied rebuke for Schäuble, who has controversially suggested that the ECB’s monetary policies are damaging German savers and boosting political polarisation by increasing support for the anti-euro, anti-immigration party Alternative for Germany.

The Schäuble-Draghi spat is reminiscent of past German acrimony. In 1982, Chancellor Helmut Schmidt, on leaving office, accused the Bundesbank of stoking deflation. In 1956, Chancellor Konrad Adenauer complained that the Bundesbank’s predecessor, the Bank deutscher Länder, was bringing down ‘the guillotine… on the man in the street’.

The difference is that now the ECB is cutting interest rates, whereas in the past episodes the central bank was raising them. In the 1950s and 1980s Germany needed easier credit to stoke economic expansion. Now, with end-2015 net foreign assets, according to latest Bundesbank figures, of €1.49tn (50% of GDP, double the end-2012 level, compared with virtually nil net assets only 14 years ago), Germany wants higher interest rates to defend its greatly inflated savings.

In some other countries where central banking tension has arisen, politics might have been expected to play an exaggerated role in choices of new governors. Encouragingly, in three notable cases, this does not seem to have been the case.

At Bank Negara Malaysia, Muhammad Ibrahim on 1 May succeeded Zeti Akhtar Aziz, who had been the Malaysian central bank’s governor for 16 years. Muhammad, who had been senior deputy governor since 2010, has worked at the bank for 32 years. An overtly political appointee had earlier been rumoured to take charge, but the government late last week announced the decision to enshrine continuity at one of Asia’s most respected central banks.

In the Czech Republic, Jiri Rusnok, prime minister for seven months in 2013-14, will become Czech National Bank governor in July when Miroslav Singer steps down after six years. Rusnok, on the bank’s board since 2014, is a former finance minister and industry and trade minister, who worked too for ING, the Dutch financial group.

At the National Bank of Poland, the successor to Marek Belka, governor since 2010, has not yet been announced. But it seems likely to be Adam Glapinski, on the bank’s board since February and previously part of the monetary policy council from 2010. Glapinski is close to the Law and Justice party (PiS), in power since October 2015; he was adviser to Lech Kaczynski, Polish president up to his death in 2010, the twin brother of Jaroslaw Kaczynski, PiS chairman. But Glapinski has enough seniority and experience to bring steadiness to the monetary job.

These different tales of succession embody a wider message. Central bankers these days are important enough to provoke sometimes serious rows with governments. But, when their term of office expires, they are far too important to be replaced by governmental mouthpieces.

David Marsh is Managing Director at OMFIF.

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