Strip away the flowery language, and the butterfly, and her letter is mostly a critique of an unaccountable central bank which has grown to become the most powerful institution in Europe.
Chief investment officers in their fifties and 60 year old chief executives can agree with Witt that the ECB is calling the shots. Capital markets heads are in hock to its decisions; covered bond bankers are seeing their market slowly ground out of existence.
We may well look back, in the long run, and see the post-crisis period as the peak of central bank power.
Although the Bundesbank and Federal Reserve have long-standing traditions of independence, the Bank of England, Banque de France and Banca d’Italia only gained independence in the 1980s and 1990s, backed by the conviction that central banking was a technocratic matter of inflation targeting.
Now, the governance arrangements aren’t any tougher, but the powers accruing to Europe’s central banks have expanded to printing a trillion euros, dictating to spendthrift governments, opining on regulatory arrangements, and supervising Europe’s banking system.
Central banking is no longer (if it ever was) a matter of careful examination of inflation statistics, followed by gentle tweaks to rates to take heat out of economies or stimulate borrowing. Monetary policy has become a series of fantastical experiments, any of which would have been inconceivable before the crisis.
The threat of sovereign default in Europe has made the ECB, however much it protests it is staying out of politics, an inherently political institution. The new powers to supervise big banks might be a component of banking union, and in turn, of monetary union, but it, too, is a political power.
Some markets, at least, have reason to be grateful to the ECB — leaving the rescue of Europe up to squabbling democratic governments might have seen the single currency fall apart, while prompt, if undemocratic action from Draghi to do “whatever it takes” did more than any of the Merkel-Sarkozy summits to keep it together.
But let’s remember who crashed the bus in the first place.
The ECB under Jean-Claude Trichet was a different place indeed. While the Fed and the Bank of England embraced unconventional measures to flood their markets with liquidity post-crisis, Trichet cut rates to 1%, but did nothing else. Then, he actually tightened monetary policy, with tougher collateral rules and a rate rise in 2011, leaving the continent acutely starved of liquidity by the end of the year.
As the central bank of an argumentative agglomeration of sovereign states, notorious for slow decision-making and compromise, the ECB is in an unusual position.
The Bank of England and the Fed are close to the historical zenith of their powers, but are at least counterbalanced by strong central governments and effective accountability.
But the ECB is not. It is independent by design, loosely accountable to the European Parliament (it must report to the Parliament, and answer questions from MEPs). It trumpets the fact that it goes beyond its statutory obligations to be accountable — by publishing a monthly report, rather than a quarterly report.
Witt is right about it being an undemocratic institution. Maybe we should all start throwing confetti.