BRUSSELS — Europe’s central bankers were cautiously critical Tuesday of U.S. President Donald Trump’s efforts to oust a top Federal Reserve official.
They expressed unease at the potential spillover effects from a growing political threat to the independence of the world’s most important central bank.
Trump invoked sweeping executive powers to unseat Federal Reserve Governor Lisa Cook in an unprecedented challenge to the legally enshrined independence of the Fed on Monday, after housing chief William Pulte accused her of mortgage fraud earlier this month.
Through her lawyers, Cook said she wouldn’t resign and would challenge Trump’s “illegal” move to get rid of her.
Independence has underpinned financial markets’ trust in central banks for half a century and has provided much of the basis for the U.S.-led international economic order.
Across the Atlantic, Cook’s counterparts at the European Central Bank are alarmed that Trump’s moves could not only set a dangerous precedent — but also have a tangible impact on their own policymaking, which is inexorably influenced by the course charted by the Fed.
“Attacking the independence of the Fed, the Trump administration inflicts a serious damage to the American economy,” said Bank of Greece Governor Yannis Stournaras in emailed comments to POLITICO. “The implications will come sooner rather than later.”
When independence is threatened, monetary policy “becomes dysfunctional, it starts doing things that it shouldn’t do,” European Central Bank President Christine Lagarde told Fox News in an interview Sunday before Trump’s move to oust Cook, but after he had already signaled he wanted her out.
“The next step is disruption. It is instability, if not worse. So I think that this should not be debated,” Lagarde added.
Chief among officials’ worries is that, without independence, the faith on which central banks’ stewardship of financial markets has been painstakingly built over decades will begin to crumble, not only in the U.S. but in Europe too.
That would, in turn, erode central bankers’ ability to steer the economy and manage inflation — at a time when their credibility is already taking a beating amid deep dissatisfaction over management of the economy after the pandemic.
Independence is “paramount” for central banks’ abilities to gently steer economies away from uncontrolled price growth, and “undermining it means risk of higher future inflation, higher interest rates, and more painful cost to the society from containing inflation,” Bank of Latvia Governor Mārtiņš Kazāks said in a series of posts on X that he highlighted to POLITICO when asked about Cook.
Others expressed a similar wariness, with one Governing Council member, granted anonymity to candidly discuss the sensitive subject, fretting that a breach of the Fed’s independence could have “enormous repercussions on the financial world,” while also stressing the basic principle of due legal process that’s not been afforded to Cook.
“It’s terrible, nobody would believe us anymore if we go that route,” the official added. He compared the situation to Turkey, where President Recep Tayyip Erdoğan’s years-long encroachment into the affairs of the Turkish central bank sparked hyperinflation that’s yet to subside.
Others were more circumspect. Speaking in Berlin on Tuesday, Canadian Prime Minister Mark Carney — formerly governor of the Bank of England — shrugged off a question on Cook. “I’m confident that whatever the source of that volatility, U.S. financial stability will continue,” he told reporters. “Of course, prices will adjust to new news, so I don’t discount those changes.”
Few have rushed to proclaim Cook’s innocence, or question the substance of the allegations against her. But observers say that shouldn’t disqualify her from due process.
For comparison, three of the ECB’s own serving top officials (including Lagarde herself) are either facing or have been convicted in connection with corruption allegations. Nevertheless, they have remained in their posts thanks to EU rules protecting central bank officials under investigation from removal until convicted.
The Bank of Greece’s Stournaras, who himself has fallen victim to political pressures back home, said Trump’s attacks on the Fed resurfaced unhappy memories of his own struggles with politicians during Greece’s sovereign debt crisis.
“Do not forget that I also suffered under the Syriza Government a lot! They thought that getting rid of me they could control the banking system following Lenin’s commanding heights theory!” he said. “And they tried hard, but they failed, mainly because I had the protection of the Treaty.”
“No independence, no credibility,” concurred another rate-setter, who was also granted anonymity to discuss the issue. “No transparency, no trust. A central bank must have all.”
Mike Blanchfield contributed to this report.
