By Chrystia Freeland
WASHINGTON, April 19 In other ages, we
have called on shamans or saints in times of crisis when the
usual remedies have not worked.
In the stagnant world economy today, we have designated
central bankers as our superheroes, and we are relying on their
magical monetary powers to restart global growth.
As the European Central Bank president, Mario Draghi, whom
some have nicknamed Super Mario, said this month: "There was a
time, not too long ago, when central banking was considered to
be a rather boring and unexciting occupation."
Not anymore. No one embodies this new glamor more than Mark
Carney, the 48-year-old governor of the Bank of Canada, who has
been tapped to lead the Bank of England, making him the first
foreign governor in the institution's 319-year history.
The bar for Carney could not be higher. A cartoon in the
British papers made the point. It showed a Bethlehem inn with
Joseph leading Mary on a donkey. The caption above the
innkeeper's head declares: "Unless you're Mark Carney, you'll
have to make do with the stable."
Carney's star power was reflected in the packed house that
turned out in Washington on Thursday to hear him at a Thomson
Reuters Newsmaker interview. Carney, who told legislators he
hoped his departure from Britain would be "less newsworthy" than
his arrival, continued his effort to play down heroic
He deftly dodged questions about the British economy, saying
it was not his job to comment on Britain yet. And he pointed out
that fiscal policy - the domain of the elected authorities -
and the private sector were the true engines of economic
"If we want to talk about ultimate sources of growth,
sustainable fiscal policy is a necessary condition. Sustainable
growth comes from the private sector, not from the
(International Monetary Fund), the Bank of Canada or anyone
else," he said.
He also took care to delineate the proper lines of authority
between the central bank and the Ministry of Finance, and
steadfastly declined repeated invitations to overstep
them. "Central bankers take fiscal policy as given," Carney
said. "Treasuries take monetary policy as given. That's the
separation, and I'm not going to wade in positively, negatively,
Within those constraints, though, Carney offered a
cautiously optimistic view of the world economy.
"The important development in our opinion over the course of
the last 12 months or so, is that the quality of private-sector
growth in the United States has picked up," he said. "The U.S.
is moving towards that class of advanced economies that have
well-functioning financial systems where private credit is
growing and where there is reasonably solid investment growth."
That is good news for Canada, as Carney said, and it is also
good news for the rest of the world.
Carney believes that a crucial element in restoring
sustainable global growth is finishing the job of
repairing global finance and the regulatory framework in which
it operates. As the head of the Financial Stability Board, set
up by the Group of 20 major economies in the aftermath of the
financial crisis, he is one of the leaders in that effort.
A major focus is repairing the gap that was revealed in the
emergency response to 2008 - the existence of "too big to fail"
banks, whose owners and executives pocket profits in the
good times but get a state bailout when things go awry. Over the
next few days in Washington, during the spring meetings of the
IMF and the World Bank, Carney and other central bankers
and finance ministers will continue to hammer out a way to let
banks die without requiring taxpayers to foot the bill.
The recent crisis in Cyprus gave a messy preview of how that
sort of resolution might work.
Carney hopes that global guidelines - and they need to be
simple enough, he said, to be usable in the time frame in which
the authorities in the real world must often operate - will make
future resolutions cleaner and more predictable.
That game plan, he believes, should include bail-ins, or
making stakeholders in the banks pay most of the costs.
"Bail-in broadly speaking - not bail-in as it was performed
a couple of weeks ago in Cyprus - but bail-in as a component of
addressing systemic risk," Carney said, "is an
absolutely necessary element. It doesn't solve everything, but
it's absolutely necessary."
Having lost our faith in the private sector and the bankers
who dominated so many Western economies before 2008, some are
looking to government bankers like Carney.
One of the analytical mistakes before the financial crisis
was believing that efficient markets were perfect and that
private bankers could police themselves.
Refreshingly, Carney is not making the same error in
reverse. He is a believer in regulation and has embraced it at
its most complex, global scale. But he said regulators need to
be watchful of the unintended consequences of their rules and
mindful of the feedback loops between their actions and private
markets. The relationship between markets and governments is a
complicated process that requires eternal vigilance and constant
If the central bankers can pull that off, they will deserve
that room in the inn after all.