Dove with a soaring economy

Author: Tom Burroughes (Market News Service, Inc, London)

Date: 1998/06/09

Irish central bank chief Maurice O’Connell, who comes to the job at the European Central Bank at a time when the Republic’s economy is bouyant, is generally regarded by the economics profession as leaning towards the dovish end of the spectrum.

A Classicist by education, O’Connell’s outlook is seen as having been fashioned in the political corridors of power rather than the more technocratic environment of central banking.

Appointed to the governorship of the Central Bank of Ireland in 1994, many see him feeling his way as he presides over an awkward period of strong growth and the demands of official interest rate convergence for the euro which, for Ireland, points sharply down rather than up. The Dublin government is being urged by Brussels to increase its budget surplus to ward off inflation.

During last month’s Central Bank of Ireland annual report, and on other recent occasions, the governor has begun to warn about the dangers of domestic inflation. He has been among the slowest of the high-interest-rate EMU entrants to bring rates down. Few, however, see in O’Connell a Damascus conversion to hawkishness.

Married with four children, O’Connell was educated several Irish schools before moving on to University College in Dublin, and holds a postgraduate degree in Ancient Classics. His career includes a spell as a Director of the European Investment Bank and Irish Telecom Investments. Experience relevant to his latest job was acquired while he served as a member of the European Community’s Monetary Committee.

In fact he spent much of his career in the Irish Department of Finance, working there from 1962 in all areas of the department. His tenure coincided with domestic economic issues such as tackling slow growth and high unemployment.

He assumed the top job at the central bank with the 1992 European Exchange Rate crisis and subsequent punt devaluation still a vivid memory. This experience, rather than current inflation worries, may account for his recent caution about interest rates despite the requirement for convergence with the EMU “core”.

A senior economist at a Dublin-based bank, who asked not to be named, said O’Connell is perhaps more political compared to some other central bankers and his long career as a civil servant may colour his views about the conduct of monetary policy.

“He would probably be more of the old-style civil servant, aware of political needs and political pressures. He came to the fore when problems in Ireland were of loose public finances and high unemployment,” the economist said.

His experiences and training would probably be more likely to make O’Connell a dove rather than a hawk, although recent experience in guiding a fast-growing economy with strong asset prices may have begun to influence his views, the economist continued. He added that O’Connell was probably a pragmatic supporter of the euro but not a “deep believer” in the project.

The strength of the Irish economy at present certainly gives O’Connell a different perspective to that of many other ECB central bankers who face much slower growth and stubbornly high unemployment. Austin Hughes, an analyst at Irish Intercontinental Bank, said, “His record in terms of recent steering of the economy is reasonably positive.”

The dilemma for O’Connell is how he can hope to continue to steer the economy when the ECB takes over. He will have to put his trust in those political circles from which he came to take the necessary fiscal medicine.