ANALYSIS:Bankers are by nature measured and careful, but Jörg Asmussen had a lot to get off his chest
IT IS NOT often that a speech by a central banker can be described extraordinary. Yesterday was one such occasion.
Normally, central bankers measure every word, say as little as possible and use coded expressions that require careful deciphering. When Jörg Asmussen, one of the European Central Bank’s top men, spoke on RTÉ radio yesterday morning he conformed to type, and may well have sent many of nation’s bed-bound snoozers back into deep slumber. Expectations for his talk at a Central Dublin think tank at midday were duly lowered.
But almost from the moment Asmussen took to the podium, it was clear that he had much more to say in his prepared script than he was willing to ad lib on radio.
He told the audience that Ireland’s economic woes are mostly of its own making. Moving to a sporting metaphor, the country had overindulged and got flabby he said. Although some fitness has been regained, there is along way (and plenty more pain) to go before the economy is back in decent shape.
If Asmussen spoke plainly about how he sees things, he was offering precious little additional assistance. He poured cold water on the prospects of easing the burden of public debt attributable to bailing out the banks, despite acknowledging that the non-default on senior bank debt was to avoid a knock on effects for other banks – not only in Ireland but all across the rest of Europe. He ruled out a medium-term official funding arrangement for the broken Irish banking system.
For good measure he went as far as to describe comment in Ireland on the bank’s stances and positions as “misrepresentations”.
The last point is naive if not plain silly. The ECB is a very powerful supranational institution doing a job that is complicated even at the best of times. Europe has been in crisis for almost half a decade now. Different people are inevitably going to have different interpretations of how the ECB has performed. Even if some utterances are deliberate misrepresentations, it is best to get on and make one’s case rather than whinging about what others say. Moreover, compared to some of the flak the ECB’s counterpart in the United States takes, almost everything said of the Frankfurt institution here is mild.
If Asmussen’s comments on others’ remarks demonstrated a curiously thin skin, he was right about the causes the economy’s woes – lax banking supervision and a credit boom, and excessively rapid increases in public spending and in all kinds of pay. He did not beat about the bush in saying – quite correctly – that problems were largely home grown.
He made clear that any costs or risks associated with restructuring the promissory notes should fall on Europe’s fiscal authorities and dutifully rejected any suggestion that Frankfurt perform alchemy to magic away the problem. He was also right note that the ECB did not have the regulatory powers during the bubble years to stop banks borrowing or lending too much (if ECB people made their case on such points more frequently, perhaps there would be less “misrepresentation”).
But while it is hard to fault his analysis, it benefits from hindsight. Everyone is wise after the fact. In his speech Asmussen sounded at times as if the ECB saw Ireland’s crash coming. It didn’t. Along with almost everyone professionally involved in the economics business (this one included), the ECB grossly underestimated the scale of the weaknesses and risks in the financial system – here and elsewhere.
Asmussen’s appearance, low key delivery and modest demeanour may have softened the content of his speech to those listening. The audience, polite if not effete, did not get tetchy about being told home truths and being offered nothing in the way of good news on bank debt.
Asmussen is only a few months in the job, having moved from Berlin’s finance ministry over the new year to the ECB’s tower in Frankfurt. He is clearly a more political beast than most career central bankers (he remains a card carrying member of the German Social Democratic Party). That he is willing to travel and to talk plainly is a welcome sign.
Like it or not, the ECB is a political institution. It has an enormous challenge facing it in the years ahead to maintain and build political legitimacy. Its people will need to get on the road and speak to euro zone citizens if it is to achieve that.
