Politics and banking can often be a lethal cocktail. US President Donald Trump not only chastises and interferes with the management of the US Central Bank, the Federal Reserve, but he has now taken the habit of criticising the European Central Bank.
Like many populist politicians, he thinks the country can be better managed through social media. Every morning, many wake up to a flood of tweets from the omniscient US President. He is not the only politician who indulges in this often boring style of communication with ordinary people. No wonder many have given up hoping that the majority of politicians are in politics to better ordinary people’s lives.
Trump has accused ECB president Mario Draghi of unfairly manipulating the euro after his dovish comments on how the ECB was planning to support economic growth. Trump, whose only barometers of wellbeing are opinion polls and stock market indices, was angry that the ECB’s move boosted European equity and bond markets and improved Europe’s chances of at last seeing some significant economic growth.
Trump immediately tweeted to his solid base: “Draghi just announced more stimulus could come, which immediately dropped the euro against the dollar, making it unfairly easier for them to compete against the US. They have been getting away with this for years, along with China and others. Very unfair for the US.”
The hypocrisy of Trump and other populist politicians is that he is in favour of reducing interest rates in the US to stimulate more growth, but he will not tolerate the ECB considering such a move in favour of the EU economies. Luckily for Europe, Draghi is made of sterner stuff and will not be intimidated by political bullies.
Politicians are motivated by short-term objectives, namely how to win the next election, while bankers are trained to take the long-term view
In 2016, when the then German Finance Minister Wolfgang Schaeuble sharply attacked ECB policies, arguing that they were causing “extraordinary” problems for Germany and were in part to blame for the rise of the right-wing anti-immigration alternative for Germany, Draghi was not flustered.
In his usual understated style, he commented: “We have a mandate to pursue price stability for the whole of the eurozone and not only for Germany. We obey the law, not the politicians, because we are independent as stated by the law.”
‘Super Mario’ certainly does not mince his words.
The big difference between politicians and bankers is that politicians are motivated by short-term objectives, namely how to win the next election, while bankers are trained to take the long-term view.
Unfortunately, the notion of independence in banking is not as deeply rooted as it should be. Some populist politicians posing as economic strategists try to intimidate bankers by openly criticising their decisions rather than ensure they act in the best interest of their depositors and shareholders rather than short-term political objectives.
Europeans have every reason to be grateful that people like Draghi do not accept to be pushed around by often less-than-competent politicians. Independence of thought is one of the most challenging virtues that a banker can make his own, as adherence to this value often causes painful tensions with politicians who believe that they are experts on every subject under the sun.
Of course, bankers often take decisions that with hindsight are proven to be wrong. However, taking the unsolicited advice of politicians could only lead to even worse decisions. Most bankers shun publicity and work in silence to find ways of carrying out their essential function successfully. Their loyalty is to the law, their customers and their shareholders. They need to be tightly regulated, as like in any profession, there are many rogues who mismanage people’s money.
Most populist politicians have a short-term mindset that does not tolerate reflective thinking and behaviour. They project themselves as innovators and supporters of disruptive technology to improve people’s lives. Their beliefs are often nebulous as they do not understand the implications of rushing to adopt new technologies. A little learning is a dangerous thing.
Europe’s economic prospect much depends on the quality of the political leadership that will emerge when the next EU Commission and other key function holders are appointed. It is worrying to hear that the next ECB president is likely to be appointed on political rather than technical competence.
The checks and balances that must exist to guarantee good governance will be weakened if crucial function holders in EU institutions are appointed as a result of political horse-trading rather than experience and competence.