- ECB President Lagarde has politicized one of the most critical global institutions
- Central bankers, the IMF and other officials have been mesmerized by the publicity.
- They have gone beyond their mission by criticizing individual countries.
Beyond her powers: Christine Lagarde
Celebrity culture is a pillar of media, but also a curse of our time. It encourages rock stars, actors and football commentators to speak out on current issues as if they were in possession of an astonishing insight.
This is important because of these stars’ ability to influence opinion through their online presence.
Far more serious, however, is the insidious way stardom has penetrated some of the world’s most discreet institutions, such as central banks and the International Monetary Fund.
In a recent private meeting, a senior financial figure was scathing about how celebrity central banking and the like are undermining the concept of public service and the credibility of decision-making.
The main example cited is the way in which the president of the European Central Bank, Christine Lagarde, has politicized one of the most critical global institutions.
Speaking on French television last month, Lagarde argued that Donald Trump’s possible return as US president was “clearly a threat to Europe.”
Trump would put Europe at odds with the United States on protectionism, military support for NATO and climate change. True as this may be, Lagarde’s public intervention was far outside what is expected of central bankers.
The Frankfurt-based ECB may be celebrating its first quarter-century next year, but his comments would anger his predecessors at the former Bundesbank. As apostles of sound money, any deviation from the main task of maintaining the German mark – now the euro – would be prohibited.
Indeed, it is difficult to think that any of Lagarde’s predecessors would have allowed themselves to be dragged into the weeds of American politics. Mario Draghi, as president of the ECB, had only one thought in mind during the eurozone crisis in 2010-2012. He memorably declared that within the ECB’s mandate, the institution “is ready to do whatever is necessary.”
Lagarde, who was once France’s finance minister, is not alone in distorting the values of independence, focus and an air of mystique once favored by central bankers.
When George Osborne hired Mark Carney as governor of the Bank of England to replace Mervyn King in 2012, displacing domestic favorite Paul Tucker, it was precisely because of his celebrity.
Carney, as governor of the Bank of Canada and chairman of the post-banking crisis Financial Stability Board, had stardust.
But he could not resist the political drift. His intervention in the 2014 Scottish referendum debate was well received in Westminster because he supported the arguments in favor of rejection. His subsequent tacit support for remaining in the EU during the 2016 referendum was seen by Brexiteers as a betrayal.
Carney’s support for climate change policies is a worthy cause. But he diverted the Bank of England’s attention from the core functions of meeting the inflation target and maintaining financial stability.
When he appeared on video at the Labor Party conference in 2023 to endorse Rachel Reeves as the next Chancellor of the Exchequer, he compromised the political neutrality for which central banking is famous. The work of the International Monetary Fund is inevitably politically sensitive. The Fund could not intervene in Sri Lanka, Argentina or other troubled nations without paying attention to local politics. As managing directors of the IMF, first Lagarde and more recently Kristalina Georgieva demonstrated a surprising willingness to interfere in British politics.
Lagarde’s warning in May 2016 to the Treasury that Brexit would be “quite bad, to very, very bad” went far beyond the convention that the IMF stays out of the internal politics of G7 shareholders.
Georgieva went off course in September 2022 when she publicly urged the UK to “re-evaluate” the unfunded Kwasi Kwarteng/Liz Truss tax cuts package, pouring fuel on the fire ravaging financial markets. Things did not improve this year when IMF chief economist Pierre-Olivier Gourinchas warned Chancellor Jeremy Hunt against tax cuts in his March 6 budget.
Central bankers, the IMF and other officials have been mesmerized by the publicity and have gone beyond their mission to criticize individual countries. In doing so, they neglect their primary task of meeting inflation targets and carefully providing advice to the government. By going public out loud, your credibility and authority are undermined.
