January 23, 2007
State of independence: is the ECB bowing to political pressure?
Has the president of the European Central Bank finally given ground in the long-running "battle of the Jean-Claudes"? After months of refusing to discuss holding more meetings with Jean-Claude Juncker, the political head of the eurozone, ECB chief Jean-Claude Trichet, now seems ready to talk.
Mr Trichet famously refused to reply to a letter from Mr Juncker last year, after the Luxembourg prime minister suggested they should have regular informal chats - possibly over breakfast. The ECB president reckoned his public acceptance of this invitation to coffee and croissants could be seen as giving in to political pressure.
But earlier this month the two did get together for an informal 45-minute chinwag in Frankfurt, along with Joaquin Almunia, the EU monetary affairs commissioner. More such encounters could follow. So has Mr Trichet sold part of the bank’s independence, as some of the sobre suited boys at Germany’s Bundesbank seem to believe?
It seems to me this debate has become highly theological, perhaps even mad. After all, why shouldn’t the head of the ECB meet the eurozone’s political figureheads privately to discuss interest rates, inflation, the exchange rate and so on?
The US treasury secretary has exactly the same kind of hash brown meetings with the chairman of the Fed and Mr Trichet already meets Mr Juncker up to three times a month in formal meetings.
Mr Trichet seems to have been most upset about Mr Juncker’s public request for additional meetings. At a time when French politicians are clamouring for the ECB to take monetary policy advice from, er, French politicians, Mr Trichet calculated he could not be seen to be bowing to political pressure.
So what has changed? Well, Mr Juncker was unanimously reappointed last November as head of the eurogroup - the monthly conclave of the single currency zone’s 13 finance ministers - with a mandate to increasing his dialogue with Mr Trichet.
I am told by two reliable sources that the ECB chief has finally agreed to a compromise, where he will hold informal, irregular chats with Mr Juncker and Mr Almunia - if they request them and if his diary permits. In theory that could happen anyway, but as one eurozone official told me: "In practice it never did."
This might even make for more effective monetary policy making, if Mr Trichet can hear in conditions of utmost secrecy from Mr Juncker what kind of fiscal decisions the member states are planning to make. Past experience suggests the ECB chief doesn’t take promises from finance ministers very seriously, nor does he much value their advice on monetary policy.
I doubt very much whether very much will change and can’t quite see this being a hammer blow to the bank’s independence. But many central bankers have their doubts.
The very fact that Mr Trichet is prepared to hold additional meetings with his political counterparts - and the fact that it has leaked to the press - is already been seen in the central banking fraternity as a sign of weakness. He may have some explaining to do.
