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.