26 November 2012

BoE Governor Carney: Questions that will need to be answered in the years to come

• An extraordinary choice by Chancellor Osborne: If Mark Carney does not deliver `the goods’ – and that will be defined with the benefit of hindsight – Osborne will be blamed for overlooking a galaxy of well-qualified locals. It may well be difficult for Osborne to survive any failure by his `choice’.
• UK commentators may be reluctant to comment initially as the undoubted success of the Canadian banking system in weathering the financial storm could be attributed to ingrained cultural and institutional traditions of risk aversion as much as the actions of a single, though clearly highly-talented, individual. The personal versus cultural/institutional record will be pored over in the months to come.
• Mark Carney will face two specific challenges beyond the academic rigour of his background:
  • The UK media and political system may turn out to be rather more aggressive than its Canadian counterpart – though the initial warmth of the welcome from Labour’s Ed Balls suggests a reasonable political honeymoon.
  • Chancellor Osborne may have chosen to overlook the fact that the European Union has recently decided to embark on a historic mission to achieve `banking union’ – as part of a drive to a greater degree of political integration of the euro area. Banking union has huge technical aspects but is really a political issue in which someone unfamiliar with the intricacies of EU politics and technicalities may find it easy to mis-step. Decisions about the shape of Britain’s banking structure will not be taken solely by Britain – while it remains a member of the European Union. This decision by the British Chancellor of the Exchequer may turn out to be more revealing of his attitude towards the European Union than any debate on technicalities.

Despite any reservations, everyone will offer the new Governor of the Bank of England every possible success in his new role. It is an extraordinarily challenging moment - in so many ways - to take charge. Success will reverberate way beyond the shores of Great Britain but he will need to draw deeply on his breadth of experience to achieve this across the full range of the Governor’s new mandate.

© Graham Bishop