The qualifications necessary to take charge at a central bank mean that any shortlist of candidates is likely to be very short indeed.
A PhD from somewhere like Harvard isn’t strictly required but will often help. The three incumbents at the Irish, UK and European Central Banks have doctorates from MIT, Harvard and Oxford. Two of them worked at Goldman Sachs, although this, I suspect, is no longer quite the door-opening feature of a CV that it once was. Stellar academic qualifications – if not academic career – are clearly required. Experience of the financial sector is an obvious help, although that needn’t have been at a central bank.
All three men are moving on and the search for their replacements is under way. Public speculation about their replacements has focused on an obvious list of candidates, many with qualifications and experience similar to the current men in charge.
Politics has already intruded, most obviously in London: the current governor of the Bank of England, Mark Carney, has taken a lot of stick for saying very sensible things about Brexit.
This, it is widely rumoured, has put a number of potential candidates off applying for the job. Brexiteers have regularly pilloried Carney and even the merest possibility of being cross-examined in committee by the likes of Jacob Rees-Mogg must be somewhat disconcerting.
Moreover, leading the British economy through whatever happens next is likely to be a thankless task. Much mysticism surrounds central bankers but they only do two things: set interest rates and (to varying degrees) set the rules for banks and other financial institutions.
That’s a lot of economic power in their hands, of course, but it is not as unlimited as it is sometimes made out to be. In a world where interest rates never go up or down, it isn’t, perhaps, much power at all. It’s tempting to conclude that the next person in charge of the Bank of England will be there to take most of the blame for the further evolution of the UK economy but none of the credit.
Financial crisis
Politics of a different kind will influence the choice of successor to Mario Draghi, boss of the European Central Bank. A lot of Germanic and northern European fears were expressed at the time of his appointment but his subsequent successful handling of the great financial crisis has attracted much praise.
Nevertheless, there is an unspoken sense that it is likely to be someone from Europe’s core rather than periphery who will succeed Draghi. Germany has the ECB but has yet to run it.
Accountability has not really been the strong suit of the ECB. The premature interest rate rises initiated while Jean-Claude Trichet was at the helm during 2011 were a shocking policy error that caused much economic harm. Nobody has ever really explained, let alone been held to account, for that monetary mistake.
And, of course, there are plenty of Greek and Irish versions of the financial crisis that jar with the often self-congratulatory narratives that emanate from Brussels and Frankfurt.
That history could yet come back to haunt whoever is in charge. While some lessons have been learned, the euro area is still very vulnerable: sluggish economic growth and an unwillingness to clean up the banking system could be a lethal combination.
Fragile system
It should always be remembered that while being boss of the ECB sounds like a big and powerful job (it is), the banking system you are in charge of is still in large parts very fragile. Just down the road from ECB headquarters, two German banking giants, Deutsche Bank and Commerzbank, have just abandoned merger talks. That deal was being driven solely by the weakness of the two institutions concerned. Our own banking crisis taught us that one way to clean things up is to create a "bad" bank in which to dump all the problems. More than one analyst has asked, if there were to be a merger between Deutsche and Commerz, which would be the good bank?
The era of strong, successful, independent central banks should not be taken for granted. It’s a recent history: the Bank of England, in existence since 1694, was only made independent in 1997.
The ECB was born only a year after that. On the other side of the Atlantic, the Federal Reserve is under attack from Donald Trump who threatens its independence with political appointees. European populism threatens the ECB, if not its existence, and its ability to do its job.
Europe and the US are, in some key features at least, mirror images of each other. The US has a strong banking system and very weak fiscal position – the government’s budget deficit is not under adult supervision.
Europe is, broadly, in the opposite situation. Italian fiscal politics notwithstanding, the euro area’s budget is under control. But its banking system has yet to be cleaned up. Brexit and Europe’s banks will generate storms for whoever is in charge. These appointments matter.
