Baron King of Lothbury, no less, and "the most brilliant economist of our generation," as one of the greats, historian Tony Judt, wrote.
The curriculum of Mervyn King (Chesham Bois, northwest London, 73 years old) would not fit on a marriage sheet, but in these pages he appears for two essential books (
The End of Alchemy
, Deusto, and
Radical Uncertainty,
yet to be translated) and for that peculiar impudence in talking about the most delicate issues that comes from having been one of the most powerful central bankers during those turbulent times we call the Great Recession.
King was the governor of The Old Lady - the Bank of England, the world's second oldest central bank, founded in 1694 to raise money to refound the English navy after it was destroyed by France.
Capable of shaking up British leaders (“incompetent” in Brexit) and Europeans (predicted the breakdown of the euro in 2016), and capable of buzzing the system (“stagnation is synonymous with capitalism”) and bankers alike (“Greedy and arrogant, they believed that they were doing God's work”), King talks to EL PAÍS to predict “a debt crisis”.
And soon.
His management from 2008 on was highly debatable, but later he understood the problem better than others and adopted ultra-expansive monetary policies, despite the fact that he is now critical of central bankers.
Especially with the ECB: "It has entered political territory."
Covidnomy.
“Covid is a classic example of radical uncertainty: a global pandemic was a highly probable event, as is a climate accident, but it still turned the world upside down.
The impossible thing was to know that a coronavirus from China was going to spread around the world and assign a probability to that event: mathematical models are great, but before engaging in that absurd task of trying to measure everything, you have to make an effort to know the nature of phenomena such as covid.
I see a lot of economists believing that they will apply their outfits to anything, and that is not having understood anything ”.
Do we learn something?
“The Great Depression was a shock to economics.
The Great Recession was disappointing in terms of economic thinking: the crisis was a failure of the system and the ideas that underpinned it, and yet we lost the opportunity to rethink it.
With the rules that regulate aviation, air accidents have become less common;
financial crises, on the other hand, are becoming more frequent.
But with the covid a good thing may happen: that the resources go from unviable sectors and companies to sectors and companies with a future ”.
King paraphrases Schumpeter and his creative destruction.
Fragility.
“The modern economy puts the accent on efficiency.
The financial system is a good example: before the crisis the banking system was very efficient and earned lots of money, but then we saw how fragile it was, and an effort was made (with only partial success) to increase its resilience ”.
“I did not fight in any war.
I didn't pay for my education.
In our countries we have Social Security, benefits, public health.
But the coronavirus has revealed how fragile our societies are, even the most advanced ones: politicians must focus on that, on increasing the resilience of the system ”.
Crisis: next stop.
“In 2020, the developed countries fell by 10% and this year we will grow by around 5%: the exact figures are completely the same, what is really important is not forecasting GDP, but rather expanding the focus.
And what is looming is a debt crisis, which will come soon.
Global debt is above 2007 levels, and companies and states have increased it further with the pandemic.
When the crutches of the State are withdrawn, there will be company bankruptcies, and most likely sovereign debt crises in emerging countries.
The fact that all this is going to happen in a more or less synchronized way is a serious problem, with the potential to provoke a financial crisis, particularly in the euro zone.
It is impossible to know when and where exactly that will happen, due to the radical uncertainty, but the system creaks on the debt side ”.
Monetary policies.
“It is time to say loud and clear that there are limits that central banks cannot cross because they do not have a mandate and because no one votes for central bankers.
In 2020, with the emergence of the covid, governments hibernated the economy: the current economic narrative tells us that the combination of fiscal stimulus and ultra-expansive monetary policies has been a success, but I cannot see the benefit of the activism of the central banks.
I have been discussing with my wife for days whether it is time to go to dinner at our favorite restaurant in London: the tenor of that discussion is not going to change because interest rates continue to drop.
What is needed is for governments to support companies and workers: it is not the central banks who have to do that, and they do not have a mandate to do so ”.
The euro.
“The danger is that central banks are starting to do things for which they have no mandate and jeopardize their independence.
The extreme case is the ECB, which has become a political animal: it has spent years relocating resources from one part of the eurozone to another without a mandate to do so.
The euro was created by pretending that a monetary union is viable without a fiscal union.
This causes constant tension, as we saw in 2010 in the South: in the absence of fiscal transfers from the North to the South, it is very difficult to keep the euro zone together.
With the covid, Europe has not opted this time for austerity but for European funds: for fiscal transfers.
But at the moment it is something temporary, for one time, and instead that is a permanent challenge for the eurozone ”.
“The German minister Wolfgang Schäuble once came to my office in Threadneedle to ask me for advice on how to solve the problems of the euro.
And I don't have the solution, but I did give him three options: permanent unemployment in the South, more inflation in the North, or fiscal union.
"I don't like any of the three," he said.
And that is the problem, because the only sure thing is that another crisis will come and then it will be too late to fix the plane in mid-flight.
To argue as Schäuble did in his day that the German surplus is useful for the euro as a whole because it generates deficits in other countries is not to have understood the consequences of a monetary union ”.
Lagarde in political territory
.
“The risk given the inability of politicians to take the step forward that the euro zone requires is that the ECB will be pressured to make fiscal transfers through the back door.
That is not a transparent or honest way to deal with the problem.
Frankfurt is getting closer to that window, which means accepting political interference.
So much responsibility on the shoulders of the ECB is not good: Christine Lagarde is moving further and further into political territory.
With the past crisis we discovered that there is a limit to the economic pain that can be imposed in the search for a federal Europe without a political response.
And in the next crisis, divisions may reappear in that battle between political will and economic reality ”.
Spain.
“When Spain joined the euro, it was able to grow very quickly, but it lost competitiveness in abundance: wages rose on the back of a bubble and competitiveness disappeared along the way.
Spain has been an example of how difficult it is to regain competitiveness even with reforms: it has not managed to lower unemployment below 15%.
Exchange rates exist for a reason: Spain joined the euro and lost that possibility of adjustment, as happened to my country 100 years ago with the gold standard.
Spain has done its homework, has made tough reforms, but unemployment is still very high.
Spaniards have to accept that high unemployment may be the price for being in the euro.
Spain was emerging from a dictatorship and Europe was a leap towards democracy;
I understand that the Spanish were willing to make that sacrifice in their day.
We British never were.
But the price is very high.
The rest of the South has similar problems.
If Italians had been told 20 years ago that if they entered the euro they would not grow at all, would they have joined the euro?
I doubt it".
Brexit.
King harshly criticized "the incompetent approach of British politicians" during the Brexit negotiation.
"Considering how we were a couple of years ago, this seems like a good deal for both parties."
“The debate about the UK's membership of the EU was never economic: it was political.
The Union never agreed to consider that there could be two types of members in the EU: those who want to be in the euro, in a political union, and those who do not.
We British didn't understand how strong that commitment was.
Brexit was almost inevitable after the creation of the Economic and Monetary Union: we do not want to pay to keep the euro together, we prefer our parliamentarism to the European Parliament, we do not want to be subject to the European Court of justice.
The political consequences of Brexit are formidable, but I think that in a while we will see that the economic ones are not so bad.
What we don't know yet is whether the mechanism created for potential trade and regulatory disputes will work.
That is going to be interesting. "
Secular stagnation.
“We have a global demand problem: what Larry Summers calls secular stagnation.
I think we need to explain why: if the economy worked reasonably well, the global economic equilibrium would regenerate in a recession because resources would go from companies in decline to companies with a future, from unviable sectors to viable sectors.
That does not happen because we have problems with prices: with exchange rates, for example.
China is a book example.
The euro too: Germany and the North have a significantly undervalued currency;
The result is that Germany continues to invest in its export sector, despite very low returns, instead of investing at home, where it could make its domestic demand profitable.
It is possible that the looming crisis, paradoxically, will come in handy if we manage to have well-articulated restructuring mechanisms.
But to do this we should be able to get the narratives right: Trump has convinced Americans that the US has been the losers of the Cold War and globalization;
the Germans are convinced that they are the paganinis of Europe.
Tremendous mistake ”.
“The most obvious symptom of the great imbalance in the world economy is the extremely low interest rates.
The other worrying figure is the level of debt.
Sooner or later we will see company bankruptcies, private debt restructurings, and sovereign debt crises in emerging markets.
We also need a reform of global monetary governance, which is in danger of fragmenting.
Hopefully we are bold enough. "