James Forsyth
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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.
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