Harijs Rokpelnis, a top official in the Greens and Farmer’s Union, a member of Latvia’s ruling coalition, said the urgency of the moment requires that politicians ignore the ECB’s advice, however sound it may be.
“Looking from the purely technocratic view of economics, they have a point,” he acknowledged, while pushing for seizure nonetheless. The ECB, in turn, can maintain its technocratic position to save face, and both sides can agree to disagree, he added. Certain central bankers may privately agree with seizing the assets, said two other people, and are more than happy for politicians to go along with it.
Some argue the ECB has the tools to deal with any problems that seizure might cause. Elina Ribakova, an analyst with the Peterson Institute for International Economics in Washington, argued that the invocation of financial stability risks has typically been a euphemism for the dumping of eurozone government bonds by countries such as China or Saudi Arabia. But the ECB, she said, could counter this with its emergency bond-buying tool, known as the Transmission Protection Instrument, which exists explicitly to stop unjustified distortions in bond markets.
Tough choice
How politicians and central bankers resolve the issue will say a lot about the balance of power between the two, at a time when the traditional authority and independence of the ECB has been weakened by a prolonged overshoot of inflation.
Lagarde and the ECB’s body of experts in Frankfurt may yet prevail. The influence of regional central bank governors — who participate in monetary policy decisions but don’t have much say on Frankfurt’s institutional stance — is limited.
But the debate reveals how political concerns can chip away at its ability to defend the currency. It’s a particularly sensitive moment for the Eurosystem’s national governors, who are appointed by their respective governments. Six of the 20 on the ECB Governing Council have terms expiring this year. Those seeking reappointment, and candidates looking to succeed outgoing governors, may be more than usually unwilling to risk offending their capitals.