Few politicians have a more volatile share price than George Osborne. His career to date has been a tale of highs (the inheritance tax announcement, the 2010 emergency budget) and lows (yacht-gate and the aftermath of the 2012 budget). Westminster’s stockbrokers were waiting for next week’s autumn statement to decide if his stock was on the up again. But the Chancellor has beaten them to it. His success in persuading Mark Carney, the governor of the Canadian Central Bank, to take on the role of Bank of England governor, is a market-moving intervention.
To be sure, few voters will head to the polls in 2015 determined to return to government the man who put a Canadian in charge of the Bank of England. But Carney’s acceptance of the role is a boost to Osborne’s reputation. He has recruited the man regarded by his peers as the most successful central banker in the world.
Carney’s great triumph was to steer the Canadian economy through the financial crash relatively unscathed despite the intensity of its relationship with the United States: if any country had been entitled to say, as Gordon Brown so frequently did, ‘it started in America’, it would have been Canada. It is not irrational to claim that Carney’s -presence in Threadneedle Street offers as much of a boost as any one man can make to Britain’s medium-term economic prospects.
In the short term, this news has reminded the political world of Osborne’s ability to surprise. He has, like the Mounties, got his man. He’s also managed to pull off this coup without news of it leaking out in advance: the first Westminster and the City knew of it was when he announced it to parliament. The secrecy surrounding this decision has gone some way to restoring trust between the coalition parties, which was greatly damaged by all the pre-Budget leaks. Not even a hint of this decision leaked out despite Osborne discussing it at length with the Quad and with Vince Cable.
More significant for the long term, though, is that Carney is the best choice for the British economy. He is the only contemporary figure who comes anywhere near to making the case for a great central banker theory of economics.
From the start of his chancellorship, Osborne has regarded his choice of the next governor of the Bank of England as the most important decision he would take in office, aside from his big macro-economic call on deficit reduction.
How he went about this process tells us a lot about his view of the world. He decided who the best central bank governor around was and then started trying to persuade him to take charge of the Old Lady of Threadneedle Street. He wanted a star and, in contrast to the Home Secretary when it came to the appointment of the Commissioner for the Metropolitan Police, he had no concerns about offering the job to a foreigner. Instead, he regarded it as a positive virtue. One of his closest confidants boasts that Carney’s selection is a ‘powerful symbol that Britain is an international place’.
His pursuit of Carney started at the G20 meeting of finance ministers and central bankers in Mexico this February. (It was on this trip that Osborne also met the rapper Dr Dre’s business partner, which lead to one of the most unlikely visits to Downing Street in recent years.)
Carney called Osborne in July to say that he would not be applying. This left the Chancellor in a bind. No other candidate could match Carney’s qualities — the respect of the international markets, a proven track record, credibility as an economist and experience of the private sector. Crucially, Carney also represented a clean break with all that had gone wrong in the City during Labour’s time in power. One senior government source conceded to me after Carney had accepted, that giving the job to the deputy governor — and bookies’ favourite — Paul Tucker would have created ‘narrative problems’ given his role in the financial crisis.
So, in October Osborne went back to the Canadian. He persuaded Carney to throw his hat in the ring, arguing that now the official deadline had passed he was unlikely to be asked about it, and guaranteeing that he could do all his interviews in one Sunday visit to London.
This gambit succeeded and Carney is now the governor-designate. Osborne’s work, though, is far from done. Next week, he will have to deliver the autumn statement which will contain more grim economic news. Even the most bullish of his circle admit that ‘it will be a very difficult day’ given the Office for Budget Responsibility’s forecasts.
One particularly painful moment for the Chancellor will be the effective abandonment of his second fiscal rule, his aim to have the national debt falling as a percentage of GDP by 2015-16. Osborne was particularly keen on this target because it embodied his hope that by the next election the coalition could declare that it had turned around the economic mess that Labour had left behind. Instead, the expectation of Treasury insiders is that debt will not be falling until 2016-17 at the earliest.
Osborne and his circle know that they cannot afford any U-turns this time. The various reversals after the budget might not have been critical to the overall package, but they took their toll on the Chancellor’s credibility. One ally observes that it is imperative that ‘nothing unravels’ after the autumn statement. To that end, Osborne himself is far more involved than he has been previously in checking that all policy decisions are robust. He has also shuffled his ministerial team, moving out Mark Hoban and Chloe Smith and replacing them with Greg Clark, a brainy Tory talent who would be in the Cabinet if it were not for coalition, and Sajid Javid, a former banker and one of the most able of the 2010 intake. Those around him hope that this more politically aware team will prevent a repeat of the budget’s fumbles.
‘Ultimately, George’s share price is intimately linked to the performance of the UK economy,’ remarks one friend of the Chancellor’s. If that’s the case, Osborne’s stock should be marked ‘buy now’. The country is out of recession and there’s a reasonable chance that Britain is in for a period of steady, if unspectacular, growth. Carney’s appointment might well be the beginning of more than one market correction.
This article first appeared in the print edition of The Spectator magazine, dated 1 December 2012