"Don’t touch Powell"…Europe’s reasons for rallying around the Fed chair

Public defense as the U.S. Justice Department weighs indictment

Europe on edge over possible dollar, FX turbulence

As reports emerged that the U.S. Department of Justice is considering indicting Federal Reserve Chair Jerome Powell over the cost of renovations at the Fed’s headquarters, European monetary authorities and political figures have come out in succession to defend him. The concern is that political pressure on central banks could heighten instability in global financial markets.

According to Reuters, Banque de France Governor François Villeroy de Galhau said in a New Year message on the 12th (local time), “I want to once again make clear my full solidarity with and respect for Chair Powell in relation to the Federal Reserve,” adding that “he is an example of integrity and commitment to the public interest.”

German Chancellor Friedrich Merz also said on the 13th, “In recent days and weeks—not only now, but for some time—I have been worried about the growing political influence over central banks around the world,” adding, “Germany and Europe have regarded central bank independence as a very important value, and we hope this principle continues to be upheld.”

German Finance Minister Lars Klingbeil, who attended a G7 finance ministers’ meeting in the United States, likewise stressed that “this conflict has been going on for some time,” and that central bank independence is “a clear line that must never be crossed.”

European officials have repeatedly criticized U.S. President Donald Trump for publicly pressuring the Fed since taking office on the grounds that it has not cut policy rates swiftly, arguing that such moves undermine central bank independence.

European Central Bank (ECB) President Christine Lagarde also described Powell as “an example of a courageous central bank governor” at the ECB Forum held in Portugal last July. At the time, Powell received a standing ovation from attendees.

In a recent interview with Bloomberg, Lagarde noted, “The EU treaties contain provisions that explicitly set out the ECB’s independence, so I have never received a call from a political leader,” adding, “The United States or the United Kingdom does not appear to have it established as strongly in law.”

European monetary authorities worry that if Trump’s pressure on the Fed becomes protracted, it could trigger sharp swings in exchange rates and higher volatility in financial markets. Some also suggest that if political interference were to affect the Fed–ECB currency swap lines, it could lead to a temporary squeeze in dollar liquidity.

In its Financial Stability Review last month, the ECB said that “in an extreme scenario, dollar funding outflows could deplete the ability to raise cash,” and urged large banks to secure dollar liquidity and put in place additional buffers.

Villeroy de Galhau said, “Because of concerns that the United States could use the dollar-based payment system as a policy tool, some regions are discussing building alternative payment systems,” adding, “Such U.S. moves could accelerate the trend toward diversification of payment systems.”

That said, Europe has not been entirely free of attempts by politicians to meddle in monetary policy. Last July, when the ECB’s rate-cutting cycle had effectively ended, Italian Deputy Prime Minister Antonio Tajani and then French Prime Minister François Bayrou publicly called for rate cuts.

Reporter Lee Hye-in hey@hankyung.com