Fighting inflation by killing growth. That’s one way to tackle the problem...
It is the way that the world’s leading central banks intend to follow. Admitting, like the US Federal Reserve chief Jerome Powell, that this policy will cause collateral damage.
And that is all! Move along, folks, there’s nothing to see here…
Nothing to see?
Among economists, the relevance of a rate hike is debated. Just as there is about whether amonetary tightening policy carries the seeds of a recession.
Politicians are concerned about the consequences of higher interest rates on economic activity and the effects on the credit market.
There is concern...
In the diplomatic world, the difference between a nose twitch and a frown is significant, but for public opinion, it means nothing. It just means that politicians are taking a back seat to central bankers.
It can be argued, in the case of the European Central Bank, that the mutualisation of monetary sovereignty has led each participating country to be more sovereign. This is totally counter-intuitive, but it is borne out on the ground. Without the euro, the economies of the member countries would have been mortally wounded by the crises that have followed one another since 2008.
Origins of independence
This pooling of monetary sovereignty is embodied in the European Central Bank and is based on its independence.
According to the following principle: the independence of central banks is the best guarantee of price stability, which is their primary objective. This principle was forged in the field in the 1970s and has gained consensus among economists and politicians alike.
Politicians were not very resentful, because this principle was based on the fear that, at each election, they would turn the printing presses on to make the electorate dream...
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But the situation has changed. Since 2008, the fight against inflation has become secondary.
Faced with the fiscal impotence of politicians, the banks have taken over to preserve the stability of the financial system and support the economies. And they have done this so well that they are now being asked to participate in the fight against global warming...
However, it is ironic that central banks have had to show great ingenuity in stimulating inflation in order to combat the threats posed by deflation to the economies. And how can we fail to smile today when we see that they are currently unable to bring inflation back down below 2%?
Need for control
But now that the situation has led them to take political decisions, should they not be subject to public control? The very people that Powell is prepared to sacrifice on the altar of the fight against inflation? Especially since they are not infallible...
It is not a question of taking away their independence. The example of Liz Truss, who questioned the independence of the Bank of England in the name of political voluntarism, settles this debate for a few years. Without the Bank of England, the former prime minister’s political impulses would have brought the British economy to its knees. And no more money printing...
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It is clear that there is a strong case for preserving the independence of central banks. But it now seems inevitable that they should be subject to democratic control in order to give legitimacy to their actions, otherwise they will be condemned to failure.
How can this be done? By rethinking their links with politics. For example, by developing their links with European parliamentarians.
In 2024--tomorrow, in other words--we will be electing MEPs. Here is a campaign theme that they would be well advised to adopt.
It is a gift.
Read the original French version of this editorial column on the site.