LONDON - One of the most famous comments in central banking came from William McChesney Martin, Federal Reserve chairman in the 1950s and 1960s, who remarked with black humor that the Fed’s job is “to take away the punch bowl just as the party gets going.”
Mervyn King, the cerebral governor of today’s Bank of England, also has a knack for the occasional out-of-the ordinary remark. Martin gave King his cue when he spoke at a memorial service last week for Lord Eddie George, the former Bank of England governor who died of cancer in April.
Eulogizing a bank governor with the kind of grit and power that was needed to rule over the City of London.
The ceremony in St Paul’s Cathedral in the heart of the City of London was an occasion for pomp and circumstance. And it provided some intriguing pointers on how the balance of power between the bank and the government may change after the next general election, expected in May 2010. The Conservative party is likely to return to power after 13 years of a Labor government.
The heavily-packed presence of Tory grandees in the 2,000-strong congregation backed up recent indications that the current opposition has some treats in store for the bank if it moves back to government next year.
King told the mourners that George — universally known as “Steady Eddie” for his reliability during times of crisis — had combined integrity, grit and statesmanship. He was also a heavy smoker — a characteristic that undoubtedly speeded his death. King related how George and fellow cigarette fan Wim Duisenberg, the first president of the European Central Bank, had vied with each other to find places (including churches) where they could join in illicit lighting-up pleasure. And King borrowed Fed chairman Martin’s phrase to say that George demonstrated central banking stringency less by taking away the punchbowl, than by removing the ashtray.
The bishop of London, Richard Chartres, raised a murmur of laughter with an anecdote about the former governor’s skepticism on the single Europe currency. George had retired to the southwest county of Cornwall, the capital of which is the market town of Truro. During one of George’s lunches in a Cornish hostelry, the bishop said a local journalist had overheard the former governor telling his interlocutor that Britain “would go into the euro” on Monday. Telephoning his scoop through to London, the journalist eavesdropper was told his story was totally wrong. George had simply told his lunch guest that he was “going to Truro” on Monday.
Joking aside, the memorial service shed light on relations between the Bank of England and the main political parties. Prime Minister Gordon Brown of Labor was conspicuously absent, but Chancellor of he Exchequer Alistair Darling (whom Brown threatened with the sack just a few weeks ago) was in attendance. Conservative opposition leader David Cameron was, too, as were former Tory premier John Major and his chancellors, Norman Lamont and Kenneth Clarke.
The Conservatives have pledged to expand the Bank of England’s powers in banking supervision after the election by abolishing the Financial Services Authority, a body that — although heavily reformed in the last two years — had been roundly blamed for helping to precipitate the banking crisis.
The bank, after all, held this role until it was controversially stripped of its supervisory powers in 1997, when Labor took office, in return for gaining operational independence on interest rates. The Conservatives’ policy ideas — which have not been totally thought through — are unlikely to represent the last word if Cameron makes it to the prime minister’s Downing Street residence next year.
Yet everyone remembers that George, governor in 1997, briefly toyed with resignation over the issue. King, for his part, has been scrupulous about maintaining even-sidedness towards government and opposition. He knows the central bank would have to considerably beef up its links with the marketplace if it were to move back to a pivotal place in supervision after the elections. George, on the other hand, would no doubt have stronger feelings.
If the Bank of England does indeed regain primacy over supervision next year, a throaty chuckle will emanate from deep within its vaults in Threadneedle Street — as the ghost of “Steady Eddie” draws on one last, deeply congratulatory cigarette.
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