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Monday, 27 July 2009

Lots of noise around the central banks

Remove me from this chair! Perhaps it is about the dreams of the British Prime Minister Gordon Brown, when he heard another sharp observation of the Bank of England. For the English King Henry II (12 century), a source of problems was Thomas Beckett, Archbishop of Canterbury appointed. To Mr. Brown - is Mervyn King, which he re-appointed to high office. The parallel is obvious: The heads of central banks - Cardinal, bow before the financial stability. Becket was murdered. Mr. King ugotovana different fate. However, later, King led the Church of England archbishops and obey. Will the bank the same fate?

In fact, as a result of the crisis, central bank independence is threatened, and this happens not only in the UK. This is due to several reasons: in terms of near-zero interest rates, the boundary between the monetary and financial policies is erased, the state supports the large financial deficits, especially the United Kingdom and the United States, threatening monetary stability and, lately, the people responsible for the crisis, wants to shift the blame on the other. Indeed, Mr. King - not only the head of the Central Bank, have been subjected to attack. U.S. lawmakers attacked the Fed chairman Ben Bernanke is due to the merger of Merrill Lynch and Bank of America. Surprisingly, German Chancellor Angela Merkel has publicly criticized unconventional policy measures, including actions taken by the ECB. Violent times breed troubled heads of central banks and cause volatility in the central banks themselves. Questions, particularly in the UK - must act as leaders in the conditions to restrict the independence of central banks, unrest among the politicians and such a heavy time? In my opinion, it is necessary to act cautiously.

Mr. King criticized the government on four aspects: first, the opinion of the Ministry of Finance, if the banks are too great to prevent their collapse, then... They are too big ", and second, the Bank of England has a" new powers to financial stability ... [But] it is not clear how the Bank can take on new responsibilities, if all that we can - to read sermons and to organize the funeral "in the third, it is not advised on what financial services will be included in the white paper, and, finally, he told the Committee, Ministry of Finance in the House of Commons: "If the economy is restored on the road, which include projections for GDP, by budget, I think, the time during which the need to reduce deficits should be end up faster than the forecast of [budget]. "

To start the simple question: whether the rights in this case the 2000 chairman? Answer: Yes, yes and yes again. It is necessary not only to bring the powers into line with the responsibilities, but also take into account that the Bank of England, a body whose activities are focused on the economy as a whole, is best suited to carry out the reasonable control of the financial system at the macro level. Besides, if this is true, it seems incredible that with the President of the Bank is not advised in the White Paper. Indeed, only Mr. Brown and his inner circle to deny the obvious: the financial situation with the deficit in 14% of the GDP forecast for 2010. Made by the Organization for Economic Cooperation and Development, is totally unacceptable. Significant cost reductions and increasing taxes relative to GDP is inevitable. So the question is whether the competence of public expression of their views, especially about issues as related to politics. Does he speak the truth or make ambiguous statements? In the current terrible conditions, of course, it is better to speak openly about disagreements than to hide them.

Yes, the politicization of the independent central bank is of particular potential threat. The Bank can do to lose, and so of limited independence. Moreover, the interaction between the authorities of the need to address the emergence of confusion can itself destroy the trust. Nevertheless, a responsible government official must decide whether a particular issue has become so important that his release - the only thing that might make a patriot. Given the financial position of Britain - of course, yes. We are not talking about moderate deficits, but the yawning abyss, which can absorb the financial stability. In addition, Britain is no longer reliable financial rules and procedures, while the prime minister has denied the implications of financial forecasts of their own government. Given such an irresponsible behavior, the chairman should have the right to vote. Perhaps the Prime Minister hates the irrepressible chairman of the central bank. But the country - not the property of politicians. Heads of central banks should always be treated with caution. But that does not mean that they must keep quiet all the time. Today, they simply must speak.

From The Financial Times

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