Not bending.

Photographer: Chris Ratcliffe/Bloomberg via Getty Images

We Need Central Bankers Who Speak Their Minds

Therese Raphael writes editorials on European politics and economics for Bloomberg View. She was editorial page editor of the Wall Street Journal Europe.
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Central bankers these days are not unlike like referees in a premier league soccer match; they spend a lot of time running around the players only to be accused of making biased or bad calls whenever they blow a whistle.

Donald Trump called Janet Yellen "highly political" last year before more recently saying he would probably replace her because she's not a Republican. Mario Draghi has been repeatedly dressed down by German Economy Minister Wolfgang Schaeuble. But neither attack went as far as the politically motivated assaults on Bank of England Governor Mark Carney, including calls for his head after he warned last week of negative consequences if the U.K. leaves the European Union.

The attacks on Carney are part of the heated battle over Britain's future relationship with Europe. With stakes this high, shooting the messenger may seem a good option. Those denouncing the central bank as "politicized" are too often seeking just that. But the recent attacks may well have implications beyond this referendum campaign. 

QuickTake Will Britain Leave the EU?

The governor "has made himself a political partisan and should be fired," said Jacob Rees-Mogg, a Conservative Member of Parliament and member of the Treasury Select Committee. Norman Lamont, a former Chancellor of the Exchequer, accused the Bank of England governor of potentially causing a financial crisis. "If his unwise words become self-fulfilling, the responsibility will be the governor's and the governor's alone."

The unflappable Canadian hit back Sunday on the BBC's The Andrew Marr Show. The BOE's job is to identify risks, not wish them away. "This is the difference between denial and transparency."

What Carney actually said last week was that a vote to leave the EU in June "could have material economic effects -- on the exchange rate, on demand, and on the economy's supply potential -- that could affect the appropriate setting of monetary policy." That was central-banker speak; but his talk of the possibility of a "technical recession" was plain English.

None of this was revelatory. Every serious study of the effects of British withdrawal has highlighted the costs of leaving, at least in the short to medium term. But hearing the word "recession" coming from the central bank chief made it much harder to dismiss. Whatever other arguments exist for leaving the European Union -- and serious ones do exist, as my colleague Clive Crook has argued -- the economic case has been lost, and that has infuriated anti-EU campaigners.

Carney did not say that there are no good reasons for Britain to leave the EU. In previous House of Commons testimony, he explicitly said that economic questions are "not the totality of the considerations" that people should think about. "We will not be making and nothing we say should be interpreted as making any recommendation with respect to that."

Carney did not make any long-term prognostications; he was talking about the short-term, which is what BOE forecasts take into account so that they can inform monetary policy. He was clear that the implications for monetary policy cannot be guessed in advance and would depend on how big an impact on supply, demand and exchange rates the move had. 

All of this is perfectly within his remit. The criticism of Carney misunderstands (or simply ignores) the role of the central bank governor. That role, of course, has been periodically redefined, sometimes radically. There was a time when central bank purchases of government debt were considered inflationary; and another when central bankers were more advisers than rate-setters and interest rates were kept low to help service the national debt. Modern central banking, at least before the financial crisis, was more market-driven; but then price stability was often confused for financial stability.

The BOE's mandate got redefined again after the financial crisis. The Financial Policy Committee and the Prudential Regulation Authority (Carney chairs both) were set up by 2012 legislation to help the bank manage systemic risk. Given that remit, to have withheld analysis of the economic risks of an EU exit would have been political in the extreme.

The BOE's founding principle, which Carney likes to cite, is "to promote the good of the people of the United Kingdom." There is bitter disagreement in Britain right now over whether the good of the people lies within or without the European Union. It is not the governor's job to express a view on Britain's June 23 referendum. But he does have a clear obligation to lay out the risks to financial stability -- and then leave it to the players decide what to do with that information.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Therese Raphael at traphael4@bloomberg.net

To contact the editor responsible for this story:
Jonathan Landman at jlandman4@bloomberg.net