Governor Carney adds more heat than light to the Brexit Debate

Yesterday Bank of England Governor Mark Carney intervened in the debate over the UK’s member ship of the European Union. He seems to like this sort of thing as he intervened also in the debate over Scottish Independence and much more oddly has opined about the Euro area crisis in the past. The latter was particularly odd as central bankers usually avoid picking holes in the policies of their counterparts and operate at the other end of the spectrum to say Jose Mourinho and Arsene Wenger. In the light of that it is interesting that Mark Carney has so far mostly avoided in the UK at least the accusations of political meddling that did for a while affect his predecessor Mervyn King. It gets even more odd when we recall that Mark Carney got into trouble for this back in Canada. Back in December 2012 the Globe and Mail reported it thus.

Mr. Carney was responsive to the efforts, and his actions over the summer – taking phone calls, asking questions about the race, staying over at a senior Liberal MP’s house during a week-long family holiday in Nova Scotia – fueled speculation about his candidacy.

With the benefit of hindsight those in the Canadian Liberal Party who wanted to replace Justin Trudeau with Mark Carney seem to have lacked some forward guidance. Anyway as one potential career path closes for now Governor Carney was at least able to release a sigh of relief that he had found something else other than promising that a UK interest-rate rise was just around the corner to talk about.

One area that I do not recall Mark Carney discussing was whether Canada would be better off joining with the United States and the Dollar. Has he?

What did he say?

Well my interest began when we were promised a “yawnathon” and perked up when I noted this.

Our report is solely concerned with how EU membership affects the Bank’s ability to achieve our core objectives of maintaining monetary and financial stability.

It is not a comprehensive assessment of the pros and cons of the United Kingdom ‘being in Europe.’

Ah so an official denial! Also he went to the trouble of putting it in bold print and splitting up the sentences into paragraphs in the “big friendly print” style of The Hitchhikers Guide To The Galaxy. Also it is very rare outside of architecture discussions that a speaker asks his audience to admire the ceiling.

Admire the Sheldonian’s ceiling.

Dynamism and Openness

I particularly noted the use of these two words.

First, to the extent it increases economic and financial openness, EU membership reinforces the dynamism of the UK economy.

If we start with openness then yes the single market as the project was once badged, provided that amongst the nine nations and over time this has grown as there are now 27 nations. However the other side of that coin was that markets outside of the European Union were restricted as tariffs were applied for example via the Common Agricultural Policy (CAP). Also the UK establishment prioritised European policy and issues over the rest of the world and old friends and allies like Australia and ironically Canada slipped down the list. The visit of the Chinese President has reminded us once more that China by contrast has in recent times put access to commodity producers at the top of its shopping list.

Actually if there is a European policy which operates against openness it is the CAP. It also sucks up so much of the European budget and back in 2013 it was estimated that it raised UK food prices by 17% on average ( Institute of Economic Affairs). Also many developing nations are disadvantaged by it.


I have to confess this looked really odd the moment I read it! Even the most Europhile would struggle to contend that the Portuguese or Italian economies were dynamic so let us look further.

Dynamism is reflected in the rate of productivity growth, the degree of labour engagement, the pace of new business creation and the rate of new innovation.

An odd time to use productivity growth as a benefit you might reasonably think as the Bank of England regularly regales us about the missing 15% that would have existed if the credit crunch had not happened. But Governor Carney points out that before then we did better.

For the majority of the period since the UK joined the EU, the first factor – greater openness and deeper integration afforded by EU membership – very likely increased the UK’s dynamism.

Indeed and here is the rub of sorts Mark Carney becomes a little like the cheerleader described in the summers biggest hit.

In the period since joining the EU, the UK has had among the fastest per capita growth rates in the G7

Actually in the detail I note that we were the fastest up to 2008. Here we have the ying and yang issue as Europhiles say look at the 35 years (1973-2008) and Eurosceptics say that the good times have gone and we should move on. The oddest part of Mark Carney’s analysis comes here.

Today, the UK economy stands as one of the most flexible not just in the EU but across the advanced world

Even the most fanatical Europhile would have some trouble explaining why that works for the UK but not Greece, Portugal or Italy. Also those who have had real wage falls, of which Mark Carney is definitely not one, might mull the benefits of wage flexibility too. Of course those who have kept their job because of it will have a different view.

As we progress we find that so many of the issues are like this which is why I have picked out these two. Freedom of movement of labour has allowed plenty of people from the UK to work abroad and others to work here. In some areas we have gained from this such as Tech City but in others services like education and health have struggled to cope. Freedom of capital movement is in theory fantastic as the textbooks show it flooding to the right place but a dose of reality reminds us that it also allows Google, Starbucks et al to pay a pittance in corporate taxes.

What about economic shocks?

This is a really odd effort from Governor Carney because the opening party line is this.

EU membership reinforces the dynamism of the UK economy. A more dynamic economy is more resilient to shocks

Rather awkward after the history of the credit crunch which is rumbling on 7 years later to argue we are more resilient to shocks don’t you think?! Still never mind just like buses a new one is soon along.

Second, increased economic and financial openness means the UK economy is more exposed to economic and financial shocks from overseas.

That I think is the equivalent of “on the one hand….on the other hand” which made a literal appearance in the latest Bank of England Minutes.

Missing however is the UK Current Account issue which does contribute to the UK being exposed to shocks.

A deficit of £26.9 billion was recorded with the EU in Quarter 2 2015, compared with a deficit of £27.6 billion in Quarter 1 2015.

I think that there are plenty of problems with the accuracy of the numbers but month after quarter after year after decade the beat remains the same.

Missing also from the analysis is the “counterfactual” which is strange when you consider that the Bank of England is usually so keen on it.


What is the impact of this? Well in many ways it rather like the US employment situation as it seems to have confirmed what people thought before hand. For example the front page of the Financial Times tells us this.

Carney backs Britain’s EU membership

Of course the FT has a long track record of supporting UK integration with the Euro and European project so that is no surprise. Ditto the BBC partly because it imported ex-FT staff such as Robert Peston and Stephanie Flanders.

Bank of England says EU makes UK economy more dynamic

Others will be thinking that if the UK establishment (Government,Bank of England,FT and BBC amongst others) thinks that it is a good idea then the odds are it is a bad one!

For me it is relatively simple. Even the new Chinese financed nuclear power stations will not push us into mid-Atlantic  (we hope!). In terms of a British staple and gripe the weather that is very much for the better. But it means we will remain next to a continent which includes many of our best friends as Portugal for example is our (technically England’s) oldest ally. On the other side of the coin the Euro project is heading in a direction very few of us want to follow of greater political and fiscal integration. So the Clash were prescient.

Should I stay or should I go now?
Should I stay or should I go now?
If I go there will be trouble
An’ if I stay it will be double
So come on and let me know

Even if we wanted too we will not be able to go on as we are. Ch- ch-ch-changes are inevitable.


Today it meets and whilst it is a small chance a deposit rate cut is not impossible as I discussed on Monday.Oddly Mark Carney failed to discuss how it is possible that the ECB has an interest-rate so far below what he has stated is the “lower bound”.

However this courtesy of Live Sqwuak is simply a disgrace which Mario Draghi should clamp down on immediately. A company are offering the ECB Press Conference.

approximately 20 seconds faster than on the ECB’s own live website.

How long does it take an Algo to make its mind up again? What could go wrong?

Oh and yes “live” finds itself in my financial lexicon for these times.


22 thoughts on “Governor Carney adds more heat than light to the Brexit Debate

  1. Hi Shaun

    I think you are being a little unfair to Mr Carney here.

    From my understanding of central bankers they should talk as little as possible and say nothing. Carney, like most modern central bankers, is not following the first but is faithful to the second.

    As Sir John Cunliffe, the lead on the report mentioned by Carney, said – and you have mentioned; we do not know the counterfactual; we do not know what would have happened had the UK not joined the EU and we do not know what will happen if it leaves. Strip Carney’s speech down to its essentials and he is saying: “We are where we are”. Well, no one could disagree with that! Carney proves he is a true central banker every time he opens his mouth; if truth be told he was a first class choice.

    I think the fear factor will come more and more to the fore in this debate and the economic argument will recede to a bit part; at the end of the day it will not be a rational discussion. and I think fear will prevail.

    As to your comment about the Euro leading to political and economic integration I’m sure you realise that the Eurocrats saw the Euro as leading to this whereas we should have had political and economic union as a precondition.

    One interesting thing to me is that if you read the Treaty of Rome the very first page states that the signatories are “determined” to lay the foundation of an ever closer union but, to me, it is clear that this is an implicit result of organically developed economic and strategic relations; it is not an explicit objective as it has become for the Eurocracy.

    • Hi Bob J

      So the lyrical advice for central bankers is this?

      “You’re talking a lot, but you’re not saying anything.”

      Talking Heads fans will know that it comes from Psycho Killer which has some other appropriate lyrics for central bankers.

      “I can’t seem to face up to the facts
      I’m tense and nervous and I
      Can’t relax”

      As to Jon Cunliffe his whole career has needed the counterfactual!

      Oh and as to your argument along the lines of chicken and egg I completely agree.

  2. Hello Shaun,

    It never ceases to amaze me the lies about European Union. It always has been about the creation of a Supa State . Why can’t it proponents come clean?

    As for the economic reasons – they are in my mind the same for joining the Dollar zone 😉

    At least the USA speaks English ( sort of ) and we have more cultural ties.

    and this bit isnt written correctly

    EU membership reinforces the dynamism of the UK economy. A more dynamic economy is more resilient to shocks

    should be

    EU membership reinforces the stagnation of the UK economy. A more dynamic economy out side of oppressive EU rules would be more resilient to shocks

    there, more like it !

    The more I see it we’ve ticked off our friends in the Commonwealth and now we find we are at odds with our so called Euro “friends” who it has to be pointed out , do very well from trade from us ( which actually would not change much if we were out of EU and still in EFTA ) and very well indeed from our contributions!

    And why is Comical Carney talking about the EU is political terms ? I didnt vote for him …..

    isn’t it time he moved on?


    • Forbin, if the UK leaves the EU the only result in the UK will be erosion of human rights (negative hours employment contracts, being required to pay your potential employer for the “benefit” or working!!) and as the UK stupidly goes to commercial price war with emerging markets based on teh above initiatives, the collapse of the economy and Governmengt with “those dodgy foreigners” being blamed for the fiasco. Think Germany 1925 – 1933 and of course on to 1945……

    • Hi Forbin

      It seems that Psycho Killer is the song for today as having used it to reply to Bob J this bit applies to Eurocrats and their ultimate objective

      “Say something once, why say it again?”

      I have made the case for the UK joining the US Dollar in the past on here and of course it is even more true for Canada as I type this it occurs to me that it might well suit Ireland too. Still who does the logical thing when you can cause a crisis which you hope will end up giving you what you want? As a piece of morality it is simply shameful.

  3. This EU referendum campaign is set to be an absolute re-run of the Scottish one.
    Every foreign leader who visits these shores will be cajoled into making a pro-IN statement.

    Senior civil servants will find it so important that we remain IN that they’ll say and do almost anything to boost the cause.

    The IN campaign has already decided that “not worth the risk” is to be its clarion call.

    I’d like to vomit in Carney’s shoes.

  4. hey Shaun

    isnt this

    Governor Carney adds more heat than light to the Brexit Debate

    more of

    Governor Carney adds more Cotton Wool than facts to the Brexit Debate ?


  5. Great column, as usual, Shaun. As far I know the FT has never even hinted at Mark Carney’s odd flirtation with running the Liberal Party of Canada, as you did today. I remember when he became the first Bank of Canada ever to speak before the Canadian Auto Workers in August 2012, his idolators in the Canadian media, which was virtually all of them, gushed about how he was redefining the role of the central bank governor, blah blah blah. Now it is pretty obvious that he was feeling out to see how well received he would be by a trade union audience, feeling his way towards a leadership bid. And of course you are quite right that in terms of electability he could not have matched Justin Trudeau.
    As I remember, Mark Carney did slap down the idea of a North American Monetary Union (NAMU) in his press conferences while he was Governor of the Bank of Canada. Unfortunately, there are no transcripts of press conferences online that one can google for references to NAMU or currency union, so I can’t refer you to one. It seemed to me that Carney’s spoken remarks pretty much followed his mentor David Dodge’s reasoning in the attached speech from when Mr. Dodge was Governor (or as Justin Trudeau would say: “Chair”) of the Bank of Canada:
    In Mark Carney’s last speech as Governor of the Bank of Canada he implicitly indicates why he doesn’t think a NAMU would work without massive changes. There isn’t nearly the mobility of labour within NAFTA that there is within Canada and of course there is no fiscal integration at all to speak of.
    If you compare that speech with Governor Carney’s speeches prior to the Scottish referendum, just seven months later, you would think he had revised his opinion about Canada working well. Instead of an A grade, he would give us just a bare pass. He laid great emphasis on central government spending accounting for a big share of GDP spending in successful currency unions, but the attached table showed us at 17%, much lower than the average. He spoke of American balanced budget rules for state governments, but provincial laws for that in Canada have come and gone and the federal government really doesn’t impose any kind of fiscal rules on the provinces.

    • Hi Andrew

      It would appear that in Mark Carney’s case a leopard can change his spots! Thanks for the information and you are right to point out that the UK financial media has pretty much airbrushed his past.

      Moving onto inflation measurement I though that you might enjoy this which I saw being linked too on Twitter. It is Professor John Weeks from SOAS.

      “Because the price indices do not adjust for quality change, we should read the chart as indicating deflation, a falling price level. Were this adjustment made it is likely that the Bank of England inflation target of 2% is in practice no inflation.”

      He quotes a paper from 1998 to prove this so perhaps his Ivory Tower is in a time warp!After all the CPI was a twinkle in someone’s eye then in UK terms…

      • Thank you very much for this link, Shaun. I don’t believe that there is a 2% upward bias in the UK CPI, although William Nordhaus, the American economist he uses to buttress his argument with, is very well-respected among index number experts. It seemed to me that Mr. Nordhaus underestimated the negatives that technology change brings to people’s lives in his paper. Of course, as you said, he wrote in 1998, and most men then didn’t have laptops that were constantly receiving spam messages from Russian and Ukrainian women who were eager to meet them, and Viagra merchants, in case they did.

  6. Excellent analysis Shaun !

    The economic difference between EU membership and EEA membership is probably less than 0.5% of GDP. Anybody who claims to accurately calculate the “amount Britain is better off” is either a fool or a liar …..

    The real issues are political. Do we value freedom of movement ? Do we want our legal system controlled by democratically elected politcians or Brussels technocrats ? Do we care about financial accountability ? Do we care about political accountability ?

    • “Do we want our legal system controlled by democratically elected politcians or Brussels technocrats ”

      Good question Expat. As the current UK Government was not elected by the majority of voters I fail to see a UK democracy, whilst on the subject of Brussels technocrats Belgium did pretty damn well out of it. Financial and Political accountability? Are you trying to say that the UK has such things?

        • Just asking the question ….

          My personal opinion is that accountability is essential – working & paying taxes is hard – and I have no tolerance of corrupt politicians stealing from the state.

      • As I understand it, your local MP is your local MP even if you didn’t vote for him/her. No matter how the votes are cast and counted you always have a representative in Parliament. It’s sidestepping Parliament where democracy and accountability break down.

      • Good point Noo. The UK system leaves a lot to be desired, but at least it did something about Aitken and Hamilton …..

        I’m saying we need financial and political accountability, I don’t want to be paying taxes for the likes of Edith Cresson

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