ECB Insight: Lagarde, Perhaps Wary of Growing Council Divergence, Seeks Tighter Control over NCB Communications
1 December 2022
By David Barwick – FRANKFURT (Econostream) – European Central Bank President Christine Lagarde is seeking to reinforce the existing ECB communications policy applicable to top Eurosystem officials, according to insiders who spoke to Econostream recently.
The original rules, issued some years ago in the wake of a scandal around a closed-door appearance by a top ECB official at a London gathering of private bankers, are known as the ‘Guiding principles for external communication for high-level officials of the European Central Bank’ and in theory apply to all Council members already. They can be viewed here.
The ECB’s current initiative to reinforce these guidelines involves the circulation to national central banks (NCBs) of relevant proposals to which the NCBs are invited to respond. If instituted, they would in particular impede the acceptance by top Eurosystem officials of invitations to certain private speaking engagements.
At the NCBs that spoke to Econostream, the effort is not entirely welcome. One insider described it as a further attempt by Lagarde to establish control, building on the one at the Governing Council’s annual retreat in June of last year, when she sought to limit public expression of dissent in the immediate aftermath of monetary policy decisions.
Technically a somewhat separate issue, Lagarde’s initiative at the retreat did not seem to rub policymakers the wrong way, perhaps because of the relaxed approach. As another insider described that particular aspect of the strategy review, ‘one of the topics that came up informally over dinner was this issue around communication, and whether we were all helping to communicate as clearly as we could, because of the potential sort of cacophony.’
‘There was certainly a consensus around the table that on the Thursday of the [Governing Council monetary policy] meeting, the president should be the only person to represent the views of the Council’, this Council member said. ‘On the other hand, there was also recognition that there were expectations of local media that they would hear from their own governor.’
The ‘general view’ was that ‘if you were going to support the conclusions of the Council, then doing so on Friday was fine’, this person continued. ‘But if you were actually going to disagree with the conclusions of the Council, you should leave a bit more distance from Thursday. So, if people were going to disagree, perhaps they should do so on the following Monday.’
At least some Council members ‘probably see it as having been agreed, but we never sort of sat down and said, “Should we do it like this?”’, he said.
The agreement, perhaps because of its informal nature, has yet to inspire universal adherence, and indeed, following the very next monetary policy meeting in July 2021, both then-Bundesbank President Jens Weidmann and National Bank of Belgium Governor Pierre Wunsch gave interviews to explain their opposition to the outcome even before that Thursday was out, with publication the next morning.
More recently and for many months now, there has been a remarkable degree of convergence across the Governing Council, making the communications issue less pressing than the imperative of addressing record-high inflation.
The fact that Lagarde, despite the cohesion that has allowed 200bp of monetary tightening in the space of just three policy meetings, deems the time right to reinforce the Eurotower’s authority over NCB communications could conceivably indicate an expectation of fraying unity ahead.
This would only be natural as the policy rate rapidly approaches neutral just as fears of recession mount and the delicate issue of quantitative tightening is up next on the agenda.
A third insider, whilst not as exercised as the first over the ECB’s move to buttress control of NCB officials’ communications, expressed blunt scepticism about prospects for success.
‘In such a diverse group of people, it is hard not to have any dissenters, and if they cannot voice their concerns openly, it always backfires’, this person prophesied. ‘If you are not able to talk freely, then there are leaks, always. It cannot work.’
Ironically, Lagarde only Monday took the opportunity to underscore her fondness for diverse views when asked during a hearing at European Parliament about a recent policy comment by Executive Board member Isabel Schnabel.
‘You know, the beauty of the European Central Bank, of its Executive Board and its Governing Council, is that while we are all engaged in the same fight and we all have the same objective ultimately, everybody has their opinion, everybody has their conviction, and I as president of the ECB, I respect that’, she said.
‘And while some people might argue that “this is cacophonic!”, I’m very sorry, but this is a debate’, she continued. ‘And this is a debate that is healthy and that is good to have. Sometimes [it’s] difficult to preside over those debates, but it is my job and I’m very happy to deliver on that job.’
Though the question in Brussels concerned a public comment by Schnabel, had Lagarde been pressed, she would have probably had to clarify that her response applied mainly to debates taking place behind closed doors at the Eurotower.