Let’s not be beastly to the bankers
This summer the euro began to strengthen, the European Central Bank pleased markets and politicians with a long-awaited quarter-point rate cut and criticism of the policy conduct of the ECB receded. It may be time for a new assessment of how the bank has been doing. Clearly it has inherited flaws from the political compromises made to set it up. Is it in such a hopeless state that mistakes will happen again, or were past errors excusable gaffes in an otherwise reasonably successful performance?
The Frankfurt-based European Central Bank has been described for most of its short existence in pretty derogatory terms: arrogant, incompetent, out of touch, lacking transparency and credibility - the list goes on. Throughout this period, comparisons with the US Federal Reserve have been particularly unfavourable. This year, while the Federal Reserve has cut rates often and deep to fight off recession, the ECB has done little. Fed chairman Alan Greenspan looks like a hero and ECB president Wim Duisenberg has attracted calls for his resignation. But quick judgements overlook the very different mandates of the two institutions.
In a straw poll of economists and investors conducted by Euromoney in August the ECB comes across as better respected than its popular reputation might lead one to believe. Supporters say that many of the accusations have been premature and the ECB has in fact done a good job in delivering on what it is mainly charged to do: maintaining stable prices in the medium term.