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.

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

Robin Harding

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

Robin Harding

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

James Politi

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

“In the recent financial crisis, the ratings on structured financial products have proven to be inaccurate,” reads p822 of Dodd’s bill. “The activities of credit rating agencies are fundamentally commercial in character and should be subject to the same standards of liability and oversight as apply to auditors, securities analysts, and investment bankers.”

Well, Mr Dodd’s wish might just have come true. The WSJ is reporting agreement between the House and Senate:-

A panel of Senate and House lawmakers negotiating final details of a financial-overhaul bill agreed this week to

 Read more

A plan to place the appointment of the New York Federal Reserve president under the jurisdiction of the White House and Senate, which the central bank fears will lead to its politicisation, could be abandoned on Wednesday.

The House financial services committee, chaired by Barney Frank, announced on Tuesday that it would seek to remove the proposal – which was included in a bill passed by the Senate last month – and replace it with an alternative that removes banks’ say in Fed appointments. Read more

Simone Baribeau

The terror of bad economic policy.

Some 79 per cent of Americans think the budget deficit is an extremely or very serious threat to the future of the country: the same percentage as for terrorism, according to a USA Today/Gallup poll.

US residents also tend to prefer Republicans to Democrats when dealing with these issues.

Is this preference fact-based? Are Republicans, in fact, better than Democrats at keeping America’s shores safe and its budget in line?

There’s no easy way to measure terrorism, but budget deficits are quantifiable. So who’s done a better job balancing them?

Here’s the chart for the last 40 years. Read more

Simone Baribeau

Fans of Donald Kohn, second in command at the Federal Reserve, have a temporary reprieve today. Mr Kohn, who was slated to leave the Fed in a couple weeks, will now stay on perhaps until September.

Here’s the Fed’s statement:

Vice Chairman Donald L. Kohn announced on Friday that, at the request of Federal Reserve Chairman Ben S. Bernanke, he plans to remain on the Board until a new Governor is appointed but to leave no later than September 1. He had announced in March that he intended to resign at the expiration of his term as Vice Chairman on June 23, 2010. While he remains on the Board as a Governor, he will continue to participate in all Board and Federal Open Market Committee meetings.

Janet Yellen, now San Francisco Fed president, was nominated by President Barack Obama back in April to fill the soon-to-be vacant slot, but so far, there have been few visible moves to get the Senate confirmation process in motion – and Republicans have been actively obstructionist in confirming Obama picks to any government post. Read more

Robin Harding

In the few days since Naoto Kan took over as Japan’s prime minister an economic narrative has emerged: he’s a deficit hawk who’s going to put up consumption tax and end Japan’s huge and enduring budget deficits.

Mr Kan’s comments and actions have certainly helped. On Tuesday he said that “rebuilding the nation’s finances is a prerequisite for growing the economy,” and he has appointed Yoshito Sengoku as chief cabinet secretary and Yoshihiko Noda as finance minister, both reputed to be deficit cutters.

But hang on a minute. Mr Kan’s focus on Japan’s debt is a clear break from previous prime ministers, but I think it’s only part of the story, and I wonder whether it’ll survive an encounter with the enemy.

Only part of the story

Mr Kan has just ended five months as finance minister. The main feature of those five months was Greece’s debt crisis. It’s hardly a surprise that Japan’s debt is at the top of his mind.

Fiscal policy is hardly the defining issue in Mr Kan’s career, however Read more

By Jude Webber in Buenos Aires

The gospel according to Argentina goes something like this: thou shalt not default.

According to former central bank chief Martín Redrado, Argentina may be in no position to dish out recommendations to the likes of Greece, but if there is one thing it learned in its 2001 crash – the biggest sovereign default in history on nearly $100bn – it is this: default is not an option.

Argentina knows first-hand the pain involved in bailing on creditors and a disorderly exit to a fixed currency regime. The cost was economic and social chaos and it is still paying the price.

Speaking to Bloomberg Television in London, Mr Redrado said markets remained sceptical about relying on fiscal adjustment and so Greece should reschedule debt in a market-friendly way. He also noted how Latin America had moved from fixed to flexible currency regimes and was now a “beacon of stability and growth” in emerging markets. He said: Read more

By Farhan Bokhari

The resignation of Pakistan’s central bank governor, Syed Salim Raza, on Thursday was played down by a finance ministry official in Islamabad. “The stock market’s KSE-100 index rose by more than 1 per cent just today so obviously investors are unmoved” he said, referring to equity prices on the Karachi stock exchange, the main stock market. Read more

From FT.com

By Gillian Tett Read more

By Joe Cochrane

Members of Indonesia’s House of Representatives have certainly been a surly bunch. They spent more than three months investigating the government’s controversial bail-out of ailing state lender, PT Bank Century, back in 2008, before voting that it was “illegal” in March.

The members then set their sights on the country’s internationally respected finance minister, Sri Mulyani Indrawati, who approved the bail-out. Like sniping jackals, the veteran lawmakers hounded her so relentlessly – there were personal attacks in the media and boycotts of sessions to discuss budget issues – that Mulyani had enough and bolted to the World Bank, where she is now a managing director. Read more

Ralph Atkins

The arrival of Vítor Constâncio as the European Central Bank’s new vice-president this week has led to a reshuffling of responsibilities on the bank’s six-person Frankfurt-based executive board. For ECB-watchers, the obvious questions are: who’s up and who’s down? I am not sure if much has changed.

As expected, Mr Constâncio, a former Portuguese central bank governor, will take over responsibility for financial stability issues from his predecessor, Lucas Papademos. That will take up much of his time in coming years, so it is probably not a big deal to him that responsibility for ECB research has been transferred to José Manuel González-Páramo, perhaps the biggest winner from today’s moves. Mr González-Páramo remains in charge of market operations – a busy beat in recent years. Read more

Robin Harding

And so Japan loses another prime minister (an annual event in recent years). The economic consequences are hard to read but here are some questions:

A stronger or a weaker government?

Relocation of the Futenma airbase in Okinawa is the issue that turned Mr Hatoyama’s administration into a lame duck with such startling speed. But even right after last year’s election Mr Hatoyama never seemed to have much to say about the economy. His leadership was one reason why, for example, any real confrontation between the government and the Bank of Japan seemed unlikely.

The departure of Ichiro Ozawa as the Democratic Party of Japan’s secretary-general is probably even more important (assuming he doesn’t continue to run things from even deeper in the shadows). His old-style Japanese interest-group politics never sat well with economic reform and cuts to the fiscal deficit. Tobias Harris is worth reading on this.

Unless a new leader can save the DPJ’s upper house majority in July elections, however – and that still looks unlikely – then the government will be weakened. A change in the BOJ law, for example, would go from unlikely to very unlikely. Another question is whether new leaders can contain conflict within the DPJ as successfully as the inoffensive Mr Hatoyama and the menacing Mr Ozawa.

Will it be Naoto Kan? Read more