Is the Bank of England maintaining its independence from government? This question has just come from the government – one of the more interesting questions emanating from a Treasury select committee, currently under way.
The questioner took issue with a comment from George Osborne’s letter of reply to Mervyn King’s inflation explanation in February. In the letter, the chancellor said: “For its part, the government’s commitment to delivering its fiscal consolidation plan continues to provide the MPC with the space it needs to target low inflation.”
Mr King was quick to scotch the implication of fiscal-monetary policy co-ordination. “We’ve certainly discussed the case for and against fiscal consolidation and I’ve explained the stance the MPC has taken on monetary policy,” said the governor, but: “There has never been any attempt on any occasion to influence the MPC on what decisions it should take.” Read more
Guy Quaden, Belgium’s central bank governor, announced last night that he will step down on March 31. “It is time the government can provide stable leadership to the Bank in preparation for the transfer of the prudential supervision of banks,” he said. A likely successor is the vice governor, Luc Coene.
Whether the government is able to secure stability at the Bank is unclear. Mr Quaden should have retired last Autumn but problems forming a government in Belgium required him to stay in his post. There hasn’t been much improvement since then. Attempts to form a coalition after the June election failed in September. Chief political mediator Johan Vande Lanotte stepped down in January. Some agreement has been made on austerity measures after markets started to fret about Belgian debt, pushing up the cost of debt for the tiny nation by almost a third. Politically, the country is still in crisis, recently passing 249 days – a record – without a government. Read more
Ed Balls, shadow chancellor, has criticised Mervyn King, Bank of England governor, saying he should step out of the political arena and stop tying his credibility to the coalition’s “extreme” deficit-reduction plans. In an interview with the Financial Times, Mr Balls drew comparisons between Mr King’s stance and the backing lent by the Bank of England to the Treasury’s fiscal hawks during the Great Depression.
“The last thing you ever want is for the Bank of England to be drawn into the political arena,” said Mr Balls, one of the architects of Labour’s plan in the 1990s to give the Bank its independence. “Central bank governors have to be very careful about tying themselves too closely to fiscal strategies, especially when they are extreme and are making their job on monetary policy more complicated.” Read more
At 10am tomorrow, Fed chairman Ben Bernanke will testify to the House budget committee, while just down the street Rep Ron Paul, who wants to End the Fed, will hold a hearing entitled “Can monetary policy really create jobs?”
The contrast will be interesting (and I’m sure Mr Paul’s staff had the media in mind when scheduling).
Mr Bernanke’s testimony is unlikely to contain any surprises ahead of his semi-annual Humphrey-Hawkins testimony, which I expect to happen about March 1st (not sure whether the House or the Senate will go first). Mr Bernanke is likely to repeat the cautiously optimistic note he struck at the National Press Club last week.
Mr Paul’s hearing, by contrast, will be different. Read more
France and Germany have called for an extraordinary summit of eurozone heads of state in the next few weeks to agree measures for greater economic policy co-ordination in Europe, to help boost competitiveness.
Angela Merkel and Nicolas Sarkozy took a break from negotiations at the summit of European Union leaders in Brussels to suggest the the 17 eurozone economies would need to reach agreement on concrete measures to improve the bloc’s economic performance and ensure the stability of Europe’s economic and political project. This would need to take place ahead of the next scheduled summit of all 27 EU members at the end of March, they said. Read more
For what might be the last time in a long time, Hungary’s central bank has increased rates by 25bp. The third rise since November takes the rate on the key two-week bill to 6 per cent.
The rise was expected, partly as a result of inflation and partly politics. Inflation was 4.7 per cent in the year to December, considerably above the target of 3 per cent. Politics, because it’s assumed the MPC would want to raise rates before a significantly altered rate-setting committee takes over in March. Read more
Confidence in Ireland could plummet today if the PM faces a vote of no confidence. Political uncertainty, as Belgium has shown, can seriously undermine the market’s faith in a country’s finances. And market reaction seems to be the main call to action for EU politicians. And just when we thought focus had switched to Portugal.
Now Ireland, as we know, has been bailed out already. Its funding is pretty well lined up – importantly, from diverse sources. The weak point is the banks. As long as any handover is smooth and quick, a change of government could be relatively painless for Ireland. Read more
In the last few hours I’ve had ten separate emails from the White House announcing that various senators, Congresspeople, governors and mayors are backing its tax deal. I’ve never seen anything like it. They must be seriously worried about whether it will pass (or at least the political backlash from their own side).
Sorry, make that eleven. Read more
For several months, Ben Bernanke, Federal Reserve chairman, has increased the drumbeat of warnings from the US central bank about America’s soaring deficit.
Although the Fed typically shies away from entering the politically-tricky terrain of fiscal policy, officials also have the duty to speak up if they feel that the fate of the economy could be at stake – and Mr Bernanke has not been shy about pointing out that rising debt levels are a long-term threat to the US economy.
His message seems to be resonating more loudly on Capitol Hill, where conservative Democratic lawmakers joined Republicans in blocking an extension of unemployment benefits and other measures to help stimulate the economy on the grounds that government spending had to stop.
Indeed, Steny Hoyer, the House majority leader and frequent ally of fiscally conservative Democrats, today said America’s debt level was a huge national security problem. “It’s time to stop talking about Read more