The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Monday, August 22, 2011

More on the fiscalisation of monetary policy: Trichet's legacy

I have been banging on about this for some time now. It is what makes the senior folks inside the RBA especially nervous. Think the politicisation of central banking. From the Financial Times:

"But in Germany, Mr Trichet is already “the central banker who went too far”. These days, he gets an atrocious press in the eurozone’s largest economy. An editorial in the Frankfurter Allgemeine Zeitung last week accused him of turning the ECB into the EBB, the European bad bank, with mountains of dubious assets on its books, including €45bn of Greek bonds.

Germans – including the Bundesbank, which opposed bond purchases – fear the ECB has strayed dangerously far into fiscal policy, compromising its task of ensuring sound money. The ECB had become a minion of the politicians, the FAZ complained.

Risks on the ECB’s balance sheet have certainly escalated, and an ignominious recapitalisation might become necessary. Still, it is hard to argue convincingly that Mr Trichet is a pushover for politicians.

A better-targeted criticism would be that he is “the central banker who became a law unto himself”. Earlier this month, Mr Trichet – and Italy’s Mario Draghi, who will succeed him – dictated to Silvio Berlusconi the emergency fiscal steps Rome would have to take before the ECB would start buying the country’s bonds. Last year, Ireland was forced into a bail-out after the ECB threatened to cut off life-saving liquidity to its banks. Rarely has an independent central bank held such leverage over democratically elected governments."