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Is Schmögnerová to be next NBS Governor?

The term in office of National Bank of Slovakia Governor Vladimír Masár ends on July 28. The search for his replacement began even as Slovakia's new government was being installed last fall, and was one of the main themes of the last night of coalition negotiations in October. Will the new Governor be Finance Minister Brigita Schmögnerová? And if so, what will be the consequences?
Coalition negotiations for a long time operated under the assumption that the post of Deputy Prime Minister for Economy would go to the SDĽ party and Brigita Schmögnerová, who had already proven her worth in the 1994 Moravčík government. At the conclusion of the coalition negotiation marathon, she wound up with the post of Minister of Finance. She didn't hide her disappointment at the time.


Is Schmögnerová being pushed by SDĽ party mates?
photo: TASR

The term in office of National Bank of Slovakia Governor Vladimír Masár ends on July 28. The search for his replacement began even as Slovakia's new government was being installed last fall, and was one of the main themes of the last night of coalition negotiations in October. Will the new Governor be Finance Minister Brigita Schmögnerová? And if so, what will be the consequences?

Coalition negotiations for a long time operated under the assumption that the post of Deputy Prime Minister for Economy would go to the SDĽ party and Brigita Schmögnerová, who had already proven her worth in the 1994 Moravčík government. At the conclusion of the coalition negotiation marathon, she wound up with the post of Minister of Finance. She didn't hide her disappointment at the time. As she herself explained (parenthetically, of course), her macroeconomic background suited her far more for conceptual than administrative work, and made her an ideal candidate for the Deputy Premiership with responsibility for overall economic policy.

Around this time the idea "Schmögnerová for Governor" was hatched, although it is not known in whose head. She herself has so far publicly denied that she is a candidate, but in words that later could be interpreted differently. Various media, for example the daily Národna Obroda last week, have repeatedly published information "obtained from well-informed sources" that Schmögnerová is considering the Governor's post, and that in the final analysis she would like it.

Many reasons exist why the Finance Minister might hanker for the highest position in the National Bank. Thanks to the six-year term of office, she would survive the economic and political turmoil that is sure to come, safely ensconced in the NBS tower. The independence of this institution is rivalled only by its unbridled power. The Governor, together with the Bank Council, holds the strings that control loans and interest rates for the whole economy. In the worst scenarios, by loosening monetary policy and gently increasing liquidity, the central bank can in a second rescue any government or ecomony from the soup. This power can be a kind of drug, precisely the reason that in most developed countries it has been taken out of the hands of politicians.

Let's look for a second at the balance of powers at the NBS. The Governor is in theory only one of eight members of the Bank Council, which decides all important questions. The Governor also nominates candidates for the Bank Council, who then must be approved by the government.

At the moment, two Council seats are vacant. If Brigita Schmögnerová or another Governor wanted to help the government quickly, it would be enough to nominate another two reliable candidates, and all of a sudden there would be three government friends on the Bank Council. If one of the current Council members could be befriended or pressured into cooperating, the balance would be four against four - with the Governor holding the deciding vote. Monetary policy could be loosened right away.

This scenario doesn't have a great chance of unfolding in reality. The National Bank has built up an excellent reputation in its six years of existence. Foreign and financial markets have applauded the NBS for nurturing a high level of economic growth while keeping inflation low. It was this credit that allowed Slovakia to borrow so much money from 1996 to 1998 on foreign markets. However, the second a politician took the Governor's post and started placing friends on the Bank Council, all credit would be lost and the state would find itself virtually unable to borrow money.

The Minister of Finance certainly understands this logic, and knows that if she became the next NBS Governor she would have to proceed very carefully, following the NBS's current cautious monetary policy - no cheap loans to the government, no help for the budget.

For that reason alone, it is entirely likely that Brigita Schmögnerová really doesn't want the job. So the question becomes, who is pushing to make her Governor?

The most likely answer is that it is a group of Schmögnerová's fellow SDĽ party members, who don't understand the complexities of the overall situation, but just want to see a party mate in the post. They see only that the Governor could "save" the government and the economy. And of all the government parties, the SDĽ is the one that most often calculates power in a "the more posts the better" arithmetic, without deep or rational analysis.

The Bank Council, one of whose members - NBS Vice Governor Marián Jusko - will probably be the next Governor, is not waiting passively for a decision to be made. Last week it decided that the NBS would not lend the government another crown. By this one decision, the bank took a place alongside the central banks of the most successful western countries, where the state must get all of its loans from private investors, who are forced to consider very carefully the conditions under which they will lend money.

This decision, taken only two months before Masár ends his term in office, was meant to send a strong message to the government - we are not going to make any political compromises just to avoid confrontation. If you want, send us 'your man,' but unless you are prepared to destroy the Bank Council and Slovakia's credit at home and abroad, you will not succeed in changing our policies.

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