Crossposted from European Tribune, also on Daily Kos
Meet Miguel Ángel Fernández Ordóñez, better known as MAFO, Spain’s Central Banker.
| Ordóñez urge la reforma de las pensiones para calmar a los mercados · ELPAÍS.com | [Spain’s Central Banker Miguel Ángel Fernández] Ordóñez urges pension reform to calm markets – ElPais.com |
| Insistió en la receta para recortar gastos y salir del túnel: “La reforma de las pensiones es capital y urgente; es una de las claves para tranquilizar a los mercados financieros”. Como velada crítica al nuevo ministro de Trabajo, pidió que se lleve a cabo “de manera inmediata” y que “su contenido sea suficientemente ambicioso”. En las respuestas a los políticos, explicó: “No haber recortado las pensiones cuando se ha recortado todo, es una concesión bastante importante” a los jubilados. Pidió que se eleve la edad de jubilación, el mínimo de años necesario para tener prestación y el periodo de cálculo de la pensión. UGT acusó a Ordóñez de generar “incertidumbre” sobre la solvencia de España. | He insisted on the recipe to cut expenditures and get out of the tunnel: “Pension reform is key and urgent; it is one of the keys to calm down the financial markets”. As a veiled criticism of the new Labour Minister, he asked that it be carried out “immediately” and that “its content be sufficiently ambitious”. In the answers to politicians, explicó: “not cutting pensions when everything else has been cut, is a very important concession” to retirees. He asked that the retirement age, the minimum number of years [worked] needed to get a benefit, and the period of [years esed for the] calculation of the pension, be raised. [Socialist union] UGT accused Ordóñes of generating “uncertainty” about Spain’s solvency. |
With whom exactly, does MAFO’s loyalty lie?
Under certain interpretations of central banking, for instance that of Hyman Minsky in Stabilizing an Unstable Economy, it would be the job of the Central Bank to “calm down the markets” by judicious use of open market operations. Instead, he tells the government in no uncertain terms that unless pensions are “reformed” market attacks on Spain’s debt won’t abate.
Here’s what Willem Buiter, whom I consider one of the leading economists of our time when it comes to understanding central banking, had to say 18 months ago:
Maverecon (FT.com): What’s left of central bank independence? (May 5, 2009)
Stick to your knitting and don’t get too close
It is a mistake for central bankers to express, in their official capacities, views on what they consider to be necessary or desirable fiscal and structural reforms. Examples are social security reform and the minimum wage, subjects on which Alan Greenspan liked to pontificate when he was Chairman of the Board of Governors of the Federal Reserve System, and Ben Bernanke’s tendency to lecture on everything, from equality and opportunity to teenage pregnancy. It is not the job of any central banker to lecture, in an official capacity, the minister of finance on fiscal sustainability and budgetary restraint, or to hector the minister of the economy on the need for structural reform of factor markets, product markets and financial markets. This is not part of the mandate of central banks and it is not part of their areas of professional competence.
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President Trichet of the ECB is already so far down the road of telling governments what to do and what not to do in the fiscal and structural reform domains, that one is hardly surprised by yet another lecture on budgetary policy from the Eurotower. Traditionally, continental European central bankers speak very little about monetary policy in public, and are often unwilling to engage in public debate or answer questions about their monetary duties, but carry on endlessly about budgetary and structural reform matters. It’s always easier to speak about things you have no responsibility for, that are not part of your mandate and about which you probably don’t know very much.
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Independent central bankers can, and where possible should, cooperate with and coordinate their actions with those of the fiscal authorities and with those charged with structural reform. If central banks, Treasury ministers and ministers of the Economy were to act cooperatively toward each other, and with credible commitment towards the private sector, good things may well happen. The reason this does not happen in the EU, or even in the Euro Area, is not a question of principle, but of logistics. There is no coordinated fiscal policy in the EU or in the Eurozone, so the pursuit of coordination between fiscal and monetary policy in the EU or in the Eurozone is simply not possible. Mr. Jean-Claude Junker could have private breakfasts and/or public lunches with Mr Jean-Claude Trichet every day of the week, every week of the year, it would not bring monetary and fiscal policy coordination in the Eurozone an inch closer to realisation.
Anyway, MAFO’s comments come the day after it is revealed that Spain’s Central Bank basically botched a regulatory intervention in one of Spain’s Cajas de ahorros. Remember when Bank of America bought Merrill Lynch and 3 months later they discovered Merrill had a hole big enough to bring down BofA, so BofA attempted to get out of the deal (as was their right under the merger agreement) and Paulson and Bernanke brought the CEO of BofA to a basement and beat him with a rubber hose until he agreed to proceed with the merger?
Well, it appears (ElPais.com, see Google translation) after Spanish Caja BBK agreed (greased by €400 million from Spain’s emergency restructuring fund, the FROB) to acquire the intervened Caja Cajasur before the summer, on the assumption that it had €200 million in losses up to June; now, 5 months later, it is revealed that the losses to August were €850 million. Should BBK now back out of the merger given than the losses are twice the amount of money the FROB is contributing, and over 4 times the amount at the time BBK agreed to the merger? The currently fashionable forced merger strategy to deal with bank insolvencies does nothing to share the burden with unsecured creditors, almost always costs more than intended, and encourages concentration in banking making the TBTF problem only worse.
But of course, it’s easier and more fun for a central banker to lecture the government about pensions and undermine market confidence in public solvency, than it is to do one’s job as banking regulator properly.