We have spent too long waiting for the policymakers to coordinate. Forget the Channel 4 series Wife Swap: we need Central Banker Swap instead.
First, the premise. In “Wife Swap” two wives from different backgrounds swap households for two weeks. During the first week they are forced to adopt the rules and lifestyle of their predecessor. For the second week, however, they set the agenda themselves.
Perhaps, if the central bank brotherhood is as strong as we are told, Bernanke might be persuaded to perform such a swap with the president of the European Central Bank (ECB).
It might even be an improvement on Bernanke’s ECB speech last week, where he defended quantitative easing against European attacks.
Even Bernanke acknowledged monetary policy had its limits. He called on the American government to come up with a fiscal programme to enhance short-term growth and reduce unsustainable long-term deficits.
Unlike the ECB, however, Bernanke never demanded a plan to reduce the build up of debt in exchange for further monetary support. America’s politicians have been spared serious decisions – for now. Europe’s politicians, by contrast, seem incapable of agreeing them.
While the Wife Swap analogy may seem facile, therefore, the circumstances could make it more promising than it seems. In his time at the ECB, Jean-Claude Trichet has forged a reputation as a fiscal hawk vocally supporting government austerity measures to rein in fiscal deficits and calling for fundamental reforms of budget rules across the eurozone region as a whole. (article continues below)
Transported to the Federal Reserve, Trichet could champion the cause of fiscal responsibility and take a leadership role in pushing Congress and the Senate into action. As obstructionist as the Republican party has been in recent times, they would find it a hard point to take issue with when they were elected on the promise of cutting the deficit.
In Europe, Bernanke’s use of extraordinary monetary tools could be used as leverage to force the single currency states to address some of the chronic problems facing the union. In particular, threatening to print money and trash the euro could drive discussion on the establishment of a fiscal union in the bloc.
Failing that, it would at least hasten a process to allow for an orderly exit for struggling economies.
Of course there are also possible downsides to such a switch. If Bernanke actually used the printing press to undermine the euro exchange rate, it could trigger a huge loss of confidence and raise the possibility of a eurozone meltdown.
Trichet, meanwhile, could spend his time picking through the minefield of financial market regulation rather than focusing on fiscal responsibility, which would simply act as a barrier to achieving any actual policy outcome.
Nevertheless, both parties could certainly learn lessons from one another. All jokes aside, the “brotherhood of central bankers” should mean more than platitudes and empty public displays of camaraderie.