President’s comments focus scrutiny on central bank independence

20-02-2015

Head of state Miloš Zeman has made one of his most outspoken attacks on the Czech National Bank to date and says he intends to fill it with nominees that share his own economic views. That’s brought to the surface a latent debate over whether the Czech central bank is independent enough.

Miloš Zeman, photo: Filip JandourekMiloš Zeman, photo: Filip Jandourek President Miloš Zeman’s recent comments about the euro, low crown policy, and nominations to the Czech National Bank (ČNB) board have sparked no small amount of controversy and again focused arguments on whether the Czech central bank is as independent as it should be.

President Zeman said during one of his visits out of Prague on Wednesday that in the future he will only nominate members of the ČNB board who oppose the current low crown policy and who are in favour of speedy adoption of the euro, which the president alleges the low crown policy is delaying.

Nominating the members of the central bank board is one of the president’s biggest powers. And Zeman’s desire to see a bank board that better reflects his economic views is nothing new. Under the first Czech president, Václav Havel, nominations resulted in a bank board that could be described as more to the political and economic centre than then prime minister Václav Klaus.

When Klaus took over as head of state in 2003, he sought to shape a central bank in his image with an emphasis on continuing with the Czech crown and opposition to euro adoption. That 10 year legacy still continues in the form of ČNB bank governor Miroslav Singer and other members of the current board. The seven members of the board are appointed for six years with no repeat nominations possible.

President Zeman has already nominated his former finance minister and former caretaker prime minister, Jiří Rusnok, to the ČNB board. Ironically though, Rusnok has in public supported the low crown policy of the bank saying that the step taken in November 2013 was the right one.

The mandates of four other members of the bank board, including that of governor Singer, will expire over in the next two years so the head of state can exercise his sole selection rights again and should be able to end up with a board to his liking.

There’s another irony as well in the current situation: while the president spouts his enthusiasm for the euro, one of the hallmarks of the Eurozone and the European Central Bank is complete central bank independence as regards board appointments and ability to set policy. Central bank independence is now a widespread European and worldwide mantra.

It is a point which ECB governor Mario Draghi and the bank has underlined in frequent clashes with Hungary over the last two years. The ECB is concerned that the government of Viktor Orban is in effect setting monetary policy and not the central bank.

So it’s not surprising perhaps that discussions about possible changes to the president’s powers, sparked largely by president Zeman’s enthusiasm to exploit his direct election to the utmost and maximize the competences allotted him under the constitution, focus in part on curbing his nomination rights at the Czech National Bank.

One idea is that the Czech upper house, the Senate, would have to approve his nominations to the national bank board. Adding another political layer is not really a guarantee of more bank independence but it should broaden and dilute the influence of those parties involved.

20-02-2015