by Balazs Koranyi and Francesco Canepa
FRANKFURT (Reuters) – European Central Bank (ECB) President Christine Lagarde has given the heads of national central banks more clout at monetary policy meetings, asking her executive board to talk less and give more voice to the debates, we learned from several sources.
Christine Lagarde has therefore asked the ECB’s chief economist, Philip Lane, and Isabel Schnabel, another member of the executive board, to reduce their interventions so that the leaders of the national central banks have more time to express their opinions. , said six sources.
Several members of the Board of Governors have complained for a long time, even before the arrival of Christine Lagarde, of the fact that a few influential voices dominate the debates within this body while other members do not always have a voice in the matter, which which distorts discussions.
The changes decided by the president also come after the criticism expressed by some against the economic forecasts of Philip Lane and his team, which underestimated the magnitude and duration of the current inflationary surge.
Christine Lagarde has decided to limit presentations by board members to 20 pages and she has instructed her teams to complete discussions by lunchtime on the first day of board meetings, usually Wednesdays, the sources said.
Since last month, Council meetings have therefore started on Wednesday mornings and no longer on Wednesday afternoons, and the Thursday session starts half an hour earlier than before, in order to leave more time for debate, said these sources.
“We are now providing fuller analyzes in supporting documents ahead of meetings so that presentations can be more concise and avoid repetition,” an ECB spokesperson said.
“By starting meetings earlier, the Governing Council gives itself more time to reach a common conclusion on the economic outlook and to take collective monetary policy decisions,” he added.
“LITTLE TIME AND LITTLE ENERGY TO DEBATE”
“Philip’s (Lane) presentations can go up to 60+ pages and are absolutely exhausting,” one of the sources said. “And of course we have to wrap everything up in time for the press conference, so there’s little time and, frankly, little energy left to debate.”
Philip Lane declined to comment on this information.
As Chief Economist, Philip Lane presents his analysis of the economic outlook and submits proposals to the Council at each meeting, and he presents economic forecasts every three months. Isabel Schnabel, who heads the ECB’s market supervision activities, gives her view of the evolution of financing conditions.
While the new guidelines apply to both, the sources admitted that Isabel Schnabel’s presentations were generally shorter than those of Philip Lane and therefore she was not the first to be affected by changes.
“Philip has an oversized voice in discussions, so the rebalancing is a good thing,” said one of the sources, all of whom spoke on condition of anonymity due to the sensitivity of the topic.
Philip Lane now sends information to other Council members ahead of meetings so they can devote more time to discussions, the sources added.
Among the signs that also suggest a change in attitude from Christine Lagarde is the fact that she proposed to Joachim Nagel, the President of the German Bundesbank, to speak at the start of the exchanges during the monetary policy meeting of April when he did not seem to have asked for it.
Joachim Nagel, in office since January, has repeatedly spoken out in favor of reducing monetary support from the ECB and raising rates to avoid an anchoring of inflation, which reached 7.5% over a year in April.
“Lagarde said, ‘I think Joachim wanted to say something,'” one of the sources reported.
Philip Lane and the forecasting teams at the ECB have repeatedly underestimated inflationary pressures since last summer as several national central banks warned that the rise in prices would be bigger and longer than predicted by the institution.
Supporters say it was impossible to predict successive waves of the COVID-19 pandemic or Russia’s invasion of Ukraine, factors that have disrupted global trade and fueled oil price spikes. energy.
Other major central banks, including the US Federal Reserve and the Bank of England, have also been unable to predict price developments in recent months even though they have admitted faster than inflation n was not as “transitional” as they initially thought.
LEAKS ON THE DEBATES IRRITATE LAGARDE
The ECB’s forecasting errors forced it to drastically change its rhetoric in just a few weeks: Christine Lagarde, after declaring that a rate hike this year was very unlikely, now hints that the first rate hike could take place from July.
The president of the institution announced upon her arrival in 2019 that she intended to make the decision-making process more inclusive, after the tense end of the mandate of her predecessor, Mario Draghi.
Governing Council meetings normally begin on Wednesdays with presentations from the ECB teams, before an informal dinner attended by members of the Executive Board and the heads of the national central banks.
They resume on Thursday morning with the detailed proposals of Philip Lane then the discussions leading to monetary policy decisions, ending with a lunch before the publication of the Council’s conclusions.
The tension within the ECB had in fact started to rise as early as last summer, when several governors questioned Philip Lane’s forecast of a return of inflation to close to 2% (the target of the ECB) before the end of this year, while complaining that the chief economist gives them little time to present their point of view.
The ECB acknowledged errors while noting that other forecasters were also wrong about the euro zone and that certain assumptions, in particular related to energy prices, explained three-quarters of the errors of assessment.
Philip Lane has not been publicly criticized by members of the Council but several of them have attacked the forecasts of his teams. At the same time, the frustration generated by the organization of Board meetings has led some to publicly express their disagreement and others to leak information on the ongoing debates.
“Christine (Lagarde) is really upset about the leaks and this is another attempt to try and stop them,” one of the sources said.
(Report Balazs Koranyi and Francesco Canepa, French version Marc Angrand)