Friday, February 5, 2021

Central Bankers as politicians of last resort

Central Banks are usually the lenders of last resort. In good monetary and financial systems, these institutions ultimately guarantee that you will get money when you go to an ATM machine, or that the transfers you do through an automatic system will have any value. 

In Italy, central bankers are not only lenders of last resort, but also politicians of last resort. Mario Draghi will be the fourth central banker to be in a top political position after president of the Republic Luigi Einaudi in the 1940’s and prime ministers (“presidenti del consiglio”)  Carlo Azeglio Ciampi and Lamberto Dini in the 1990s. Einaudi and Ciampi had been previously governors of the Bank if Italy, and Lamberto Dini had been both an executive at the International Monetary Fund and the Bank of Italy before being prime minister. To this list of technocrats, Mario Monti is usually added to them, as he was considered an academic financial expert with no partisan political experience before being European commissioner and later prime minister at the beginning of the twenty first century.

Although Italy is unusual in this respect, this phenomenon has the advantage of removing the aura of ideological impartiality from the figure of the central banker. Ciampi, Dini and now Draghi had or will have to make political decisions, will have to take sides and deal with distributional issues. If they have been chosen, it is because someone of relevance has thought that they have political and ideological skills to contribute to this.

According to the article published yesterday in The Economist, Italy has had 12 prime ministers since 1993.  In the same period, there had been five in Spain. But Spain does not have the pool of political credibility of a great technocratic class, and the head of state (a monarch) lacks the legitimacy to intervene in politics of the Italian President of the Republic, who is the one to propose the technocrat.

The tradition of governors of the Bank of Italy entering politics goes back to Luigi Einaudi, the second president of the Italian Republic after the second world war. Einaudi, a liberal, was a great defender of the idea of European federalism. In that, he has been followed by Monti and Draghi as representatives of an Italian pro-European technocracy. Needless to say, this has the danger of associating the idea of Europe to an aristocracy far removed from the feelings of ordinary people, but it gives Italy a last chance option when everything else fails, and an option that respects democratic procedures and Parlamentarian institutions. In Spain, we do not have this option, so only partisan politics can save us.

Somehow oddly, The Economist adds Giuseppe Conte to the list of outsiders, a lawyer with no previous political experience that was chosen first by the Lega and the Five Star Movement (5SM), and later by 5SM and the Democratic Party . With him, the average duration of a technocrat as prime minister since the 1990s has been little more than one year.

Mario Draghi has the chance to improve upon this average. In a way, he is the best of the lot. He is the more political of all of them, and he comes not only with experience from the Bank of Italy, but with the experience of having been the Chairman of the European Central Bank, where with his “whatever it takes” statement is reputed with having saved the euro from collapsing as a currency. He does not lack an ideology. As a matter of fact, in an interview with Die Zeit some years ago, he said “My convictions were along what you would call today ideas of liberal socialism, not really suited for extremist groups.”

In other countries, the controversy is whether Central Banks are or should be independent from politics. In Italy, the controversy is whether politics is independent from central banking.

Pro-European technocrats are natural allies of the European federalist centre-left in times of crisis. Mario Monti was proposed by President Giorgio Napolitano and Draghi has been proposed by President Sergio Mattarella, under the applause of the center left influential newspaper La Repubblica and its prestigious founder, Eugenio Scalfari.

There is some parallel with events in the USA. Biden and Draghi are two old men that have been called to leave national-populism behind. Of course, in two very different ways, because the political systems and traditions are very different. Biden has won a presidential election, and Draghi will be voted by Parliament proposed by the President of the Republic (himself elected by Parliament), and after an intermediate period of coalition government between 5SM and the Democratic Party that left Salvini (one side of the populist equation)  out of government.  But in a way, they simbolize the end of playground time. It should be good for Europe and for global multilaterlism.

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