Sabine Mauderer, a member of the board of Deutsche Bundesbank, anxiously paced from side to side as she waited to speak.
From the stage, she could see the crowd of anti-fascist demonstrators filling Frankfurt's central square and hear the chants echoing across Germany against the rise of the far-right party AfD. Such rallies have become more common this year after a surge in supporters. However, it is unusual, quiet, and risky for central bankers to come together and speak out.
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Central banks consider their independence sacrosanct. The European Central Bank says it would not have been able to successfully meet its inflation target without it. But monetary policymakers are beginning to test their independence as they grapple with the populist threat in a year of elections around the world.
Mauderer, 53, who joined Deutsche Bundesbank after rising through the ranks in risk management and compliance, was about to enter one of the most contentious political debates Germany has faced in years.
“Anti-democratic groups are dividing our society,” she told a crowd in Frankfurt. “They are damaging Germany's reputation in the world.”
The Bundesbank's statute, like the ECB's statute, aims to protect central bankers from interference by democratically elected officials, not the other way around. The taboo against these technocrats getting involved in politics, which largely functions as a matter of convention, is beginning to fray.
Mauderer in Frankfurt on February 23. Image: Alex Kraus/Bloomberg
This year, Deutsche Bundesbank President Joachim Nagel and ECB board member Isabel Schnabel have taken part in demonstrations like the one where Mauderer spoke. Christine Lagarde, the continent's currency guardian, has repeatedly slammed the threat Donald Trump's re-election poses to Europe's stability, speaking out on a subject that deters more cautious colleagues.
The central bank has described these actions as apolitical, saying in response to a question from Bloomberg that “Sabine Mauderer and Joachim Nagel's efforts against xenophobia and xenophobia are a sign of the independence of the Bundesbank.” consistent with gender,” the spokesperson said. “As representatives of large federal agencies, they believe it is their duty to uphold our nation's fundamental democratic values.”
The defense of democratic principles should be indisputable in nature.
But another lesson Europeans have learned from Trump's presidency is that this is not always the case. In Germany in particular, the argument that it is a common national duty to stand up against xenophobia and xenophobia is complicated by the existence of political parties that put both at the heart of their propositions to voters.
Especially when a large portion of the population is rushing to support it. Alternative for Germany (AfD), whose far-right politics was once considered a fringe concern, recently rose to second place in national opinion polls.
On the topic of speech, the ECB has taken a similar line to Frankfurt's neighbours. “As representatives of the European Union institutions, ECB Governing Council members support and uphold the EU values of mutual respect, dignity and freedom from discrimination,” the spokesperson said.
Some analysts see these actions a little differently.
“It's about self-preservation,” says Leah Downey, an academic at the University of Cambridge who writes about the politics of monetary policy. “In central banking, political decisions are always made under the guise of technocracy. Now, as populists begin to threaten the prerogatives of technocrats, policymakers need to become explicitly political.”
Ms. Lagarde herself has been candid about the stakes in moments of letting down her guard. Regarding her own condemnation of the next US presidential candidate, she told CNN that being “politically correct” about Trump's questions carries “the risk of not seeing reality and being prepared.”
The ECB president said he was concerned that this was a punitive tariff system, and for good reason. According to a report from Bloomberg, President Trump plans to target the EU with a number of aggressive trade measures if he takes office again.
Attacks on the ECB from within the 20-nation eurozone are relatively benign compared to those endured by countries outside the eurozone, but these precedents suggest that policymakers believe attacks are the best defense. You might start thinking that. The debate has been sharpened by a series of high-profile controversies over the pressures placed on monetary policymakers from Thailand to Turkey.
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One risk in Europe is that authorities could become targets of the same extremists they are trying to deter. The AfD on Tuesday accused the Bundesbank of misguiding its bond-buying program, costing German taxpayers billions of dollars. This is a distorted view of the complex issue of central bank accounting, but one that may still find favor with voters.
On January 21st, a protest against the AfD party took place in front of the Reichstag building in Berlin. Image: Krisztian Bocsi/Bloomberg
The decline in central bank independence is, in a sense, a return to historical norms. Milton Friedman and others were already advocating the independence of monetary policy from government goals in the 1960s, but it was not until 30 years later that this became the norm in much of the developed world.
Still, it's no surprise that politicians and central bankers are at odds. right nowVolker Wieland, professor of financial economics at Goethe University Frankfurt and former member of the German Council of Economic Advisors, said:
“There are times when monetary policy and fiscal policy coincide in their objectives,” such as during the pandemic, he said. “More recently, however, high inflation, which is also a contributing factor to expansionary policy, has necessitated monetary tightening to ensure a sustained return to price stability, while fiscal authorities continue to move away from expansionary policy. He was reluctant to back down.”
The lines between monetary and fiscal capacity have been blurred by the Great Financial Crisis, the subsequent sovereign debt crisis, and the COVID-19 pandemic. Policymakers stepped in as lenders of last resort, buying trillions of euros worth of bonds issued by banks and governments alike to fund support measures. Under Lagarde, the ECB also embarked on the fight against climate change, a controversial move, at least initially.
David Marsh, chairman of the Government Monetary and Financial Institutions Forum, said: “What is left is a gray area between politics and central banks that is becoming wider, muddier and harder to navigate.'' ” That's why “central bankers have to think very carefully about what they say and try to make things better, not worse,” he said.
One reason there are so few rules preventing central bankers from commenting on politics is because democratically elected officials have greater freedom to ignore the rules. The ECB's code of conduct imposes independence on member states, not for politicians but because of reputational risks to the institution itself.
Policy makers must grapple with the fact that others are political, whether they classify their actions as political or not. And politicians could tell financial officials to step up, especially if they're short on their day jobs.
“We need less politics and more price stability,” European Parliament member Engin Eroglu advised Lagarde earlier this week. “Everything else should be left to the politicians.”
The ECB president's comments about Trump have precedent in the intervention of former New York Fed President William Dudley, who wrote in a Bloomberg op-ed in 2019 that policymakers “have no right to influence global political outcomes on their decisions.” We should consider what kind of impact it will have,” he wrote, sparking a backlash. 2020. ” Former Treasury Secretary Lawrence Summers said at the time that this “might be the most irresponsible statement by a former Treasury official in decades.”
Lagarde (left) and Trump attend the G7 Summit in Canada in 2018, when Lagarde was head of the IMF.Image: Cole Burston/Bloomberg
Lagarde's recent anti-Trump comments have not sparked similar outrage. Perhaps it's because, as the former president's campaign suggested, Americans don't care about “a few people in Europe.” Perhaps it's because people are used to her not mincing words. And that may be partly because the notion that central banks are apolitical institutions is becoming increasingly discredited.
“The heyday of central bank independence seems to be behind us,” said Michael Gavin, a researcher at the University of Ottawa. Together with his colleague Mark Munger at the University of Toronto, he has documented the gradual increase in populist pressure on monetary policymakers. “If I were a European central banker, I'd be sticking my neck out and trying to get ahead of the curve right now.”
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