Is King pushing behind the EU scenes?
Clarissa Tan 3:47pm
Mervyn King's words today, in the Financial Stability Report, are probably more
important to the UK economy than George Osborne's on Tuesday. As James points out in the magazine this week, Osborne's plans could well turn out to be irrelevant if the eurozone collapses,
flattening whatever is left of Britain's growth prospects.
Basically, King feels that, thanks to the euro crisis, we're all headed for a credit crunch. This echoes Downing Street's sentiments yesterday. He says UK banks are well capitalised but should still boost their reserves – not by withholding loans to businesses, but by cutting dividends and bonuses. He also offered one interesting nugget at the press briefing: he said he spearheaded yesterday's dramatic move by six major central banks to increase liquidity in the global financial system.
As Reuters says:
King has been very careful not to step on fellow central bankers' toes with regards to EU financial problems, emphasising that euroland policy is none of his business (he repeated that today, saying 'only the governments directly involved can find a way out of this crisis.') But his initiating of yesterday's giant swap deal – if indeed he did initiate it – suggests that, behind the scenes, he may be busy making the Bank of England's stance felt.'As far as the swap agreements that were published yesterday by the group of central banks that made the announcement. This was not an action of the FPC [Financial Policy Committee]. It was not involved in it. It was the result of conversations which I initiated as chairman of what used to be known as the G10 governors, now the economic consultative committee among a limited number of central banks.'
At any rate (though one can only push the comparison so far) yesterday's joint central bank action does bear the hallmark of a Mervyn King solution – a massive pumping in of liquidity, as seen in the BoE's own Quantitiave Easings I and II. The coordinated move worked for a while, at least to improve sentiment, with global markets rallying late yesterday. But by this morning, investor optimism had all but petered out.
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Andy Leeds
December 1st, 2011 4:08pm Report this commentSir Mervyn and his fellow Central Bank Governors have done far more than the Euro zone politicians who all seem to behave like rabbits. What they did yesterday has helped quite a lot but it is no solution as he himself said.
TGF Euros
December 1st, 2011 4:19pm Report this commentMervyn King's track record has been years of excess inflation and the collapse of much of the UK banking system. Since 2007 the UK has suffered from the worst credit crunch of any major country, with the contraction in credit worsening considerably through 2011. A person less qualified to lecture other countries on how to run their affairs would be hard to find.
Leonard of Quirm
December 1st, 2011 4:25pm Report this commentSo they're going to improve their balance sheets by cutting back on bonuses and dividends ....
Hysterical laughter.
Nickle
December 1st, 2011 4:33pm Report this commentQuite.
At the same time the government is taxing bank's capital. Reducing it.
What a bunch of plonkers!
Heartless Curmudgeon
December 1st, 2011 4:38pm Report this commentAs with the H2B, all words.
Merv saw, - or should have seen, - what was coming long ago during the years of the Great Economic Pretender. And he did ... ?
Still, that as some say, is water under the bridge.
My worry for him is, - is his pension pot full and secure?
commentator
December 1st, 2011 4:45pm Report this commentIt's even better than that, Nickle. Osborne has decreed that the banking sector must pay a large fixed figure sum by way of bank levy. But the banking seector is contracting steadily so that means that what remains must bear a higher and higher bank levy burden. Of course that creates an even greater incentive for banks to shrink in the UK bank, with a further loss of jobs and revenues. This is the kind of genius you get from a Magdalen College Oxford history grad whose only previous job was folding shirts in Selfridges.
TomTom
December 1st, 2011 5:51pm Report this commentBanks are hardly likely to restrain bonuses, they have hard-wired them by making them contractual obligations. They are a partial liquidation of Equity and mean the staff can take their cut home in cash rather than risk it in a dying business. Mervyn had better try harder than this.
The simple fact is Banks are rather like corporations taking out low-interest Directors' Loans before insolvency
Cynic
December 1st, 2011 6:29pm Report this comment"The coordinated move worked for a while, at least to improve sentiment, with global markets rallying late yesterday. But by this morning, investor optimism had all but petered out." As even I could have told anybody who would listen. I believe the technical term is a "dead cat bounce".
David Tomlinson
December 1st, 2011 8:09pm Report this comment"This is the kind of genius you get from a Magdalen College Oxford history grad"
Clearly not a member of the several Magdalen teams to win University Challenge. But it a bit hard on the rest of us who believe History at Magdalen gave us a very realistic understanding of the world. And we can point to John Redwood (and he got a First) which just goes to prove a Magdalen History grad should be Chancellor, it's just that we've got the wrong one. Blame Cameron.
Widmerpool
December 1st, 2011 8:48pm Report this commentThere was an old saying in the City "doing good by stealth" and the Old Lady of Thread St. was very adept at it. Let's hope the current Govenor is keeping up the old tradition it may be more effective than the useless efforts of the Tobin Tax totting Eurocrats!
daniel maris
December 1st, 2011 10:15pm Report this commentWhy is the useless King still in a job? He has presided over targets missed by a mile, lurches in policy, a serious recession and generally poor economic performance. Why should we believe anything he says?
All one can say is that by spreading gloom and fear he is doing his bit, along with Osborne, to push us into a downturn of mega proportions.
daniel maris
December 2nd, 2011 2:09am Report this commentWidmerpool -
Having chosen an ineffectual character as your soubriquet, it is no surprise that you are giving your wholehearted support to an ineffectual head of the Bank of England. King is right up your street (apologies for the demotic phrase which might offend your sensibilities).
Widmerpool
December 2nd, 2011 7:47am Report this comment@daniel maris
I do concede that King is no Steady Eddie and probably did not see Northern Rock coming quickly enough although part of the blame for this IMHO must go to Gordon Brown and Ed Balls[?] for gelding the enormous power the BofE used to wield in the City
It is an impressive organisation and probably more streetwise than those buffoons in Brussels!
Moriarty
December 2nd, 2011 9:15am Report this comment@Daniel
The whole point of the Widmerpool character is that he presents as "ineffectual" but is in fact anything but.
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