Why Osborne went to Canada for his governor

 

George Osborne tells the BBC's Robert Peston why Carney was the right choice

The Canadian economy and Canada's banks weathered the great financial storm of 2007-08 in better shape than pretty much every other major developed economy, with the possible exception of Australia.

Which is why George Osborne was very keen to recruit the governor of the Bank of Canada, Mark Carney, to succeed Sir Mervyn King in a rather bigger and more complex job, as governor of the Bank of England.

Mr Osborne regarded Mr Carney as the central banking equivalent of Sir Alex Ferguson or Pep Guardiola. But Mr Carney isn't cheap - and will receive a pay package of £624,000.

The chancellor first approached Mr Carney last February - and Mr Carney said no (as you can see from this BBC interview).

But Mr Osborne was keen to get his preferred central governor, because Mr Carney was widely perceived to have all the bits: he is admired by monetary economists, regulators and - allegedly - his staff (or to put it another way, he is an unusual economist and central banker, in that he is seen as a half-decent manager).

What's more, he brings with him the ability to seriously influence the future all-important global debate on making the banks safe, because he is the chair of the Financial Stability Board - the senior worldwide financial regulatory body.

So Mr Osborne would not let go and went back to Mr Carney a couple of weeks ago, and this time he said yes.

However, Mr Carney still had to get through the interviews: he had his a fortnight ago; and the UK now has its first ever foreign governor of the Bank of England (although Mr Carney has a British wife, British children and will apply for British citizenship).

Some may feel a tiny bit sorry for the four other eminences on that short list (Paul Tucker, Lord Turner, Lord Burns and Sir John Vickers) - because they now look like the chancellor's insurance in case Mr Carney said no.

As it happens, I did not think Mr Carney was in the frame because a well-placed Treasury source told me - in terms - that the unknown fifth person on the short list "was very unlikely to get the job" (see my blog of two weeks ago).

Mr Osborne looked pleased as punch with having kept the appointment under wraps till parliament was informed at 3.30pm and - perhaps especially - with the enthusiastic support for the advent of Mr Carney given by Ed Balls, a shadow chancellor who rarely praises his oppo.

So where does the controversy - if any - lie in the Carney pick?

Well, it is yet another promotion for a Goldman Sachs alumnus (the two most important central banks in Europe, the ECB and the Bank of England, will be run by former Goldman managing directors).

And on paper his pay at the Bank of England looks chunky. He will receive a package of £624,000, and will receive a yet-to-be-decided relocation and accommodation allowance (the court of the Bank of England will fix this emigration payment - and, for what it is worth, Barclays got a bit of stick for saying it would pay extra tax on behalf of Bob Diamond, when its former chief executive moved back to the UK).

Now Mr Carney's package of £624,000 is more than double Sir Mervyn King's salary of £305,000. But the Treasury and the Bank of England both point out that Sir Mervyn is a fully paid-up member of a staggeringly generous Bank of England pension scheme. That scheme is now closed, so Mr Carney isn't allowed to join it. But if he were allowed to join it, according to the Treasury that would be roughly worth the £300,000 difference between his salary and Sir Mervyn's (so it really must be an amazing, gold-plated scheme).

Also, the Treasury points out that Mr Carney will receive less than the £685,000 package of Martin Wheatley, who will run the UK's newly created Financial Conduct Authority, and less than Hector Sants was paid as chief executive of the Financial Services Authority.

So there are other public servants paid more than Mr Carney. And to state the bloomin' obvious, only time will tell if Mr Carney will turn out to be value for money.

Update:

It is hard to think of another developed economy where a foreigner would be appointed to such an important and sensitive public service post.

So the choice of the Canadian Mark Carney to be the next governor of the Bank of England marks the UK as unusually free from nationalist prejudices and hang-ups.

And that is certainly how the chancellor sees the appointment.

I have just interviewed George Osborne for the BBC and he says that his choice of Mr Carney is testament to the openness and tolerance of Britain, which he reveres.

But doesn't it also show a dearth of home grown talent? Well, Mr Osborne insists the runners-up were all first rate.

He would not confirm their names. But apart from the ones I have mentioned before, they also included the founding chairman of the Financial Services Authority, Sir Howard Davies.

As for whether Mr Carney is worth his £624,000 a year, Mr Osborne did not grumble when I pointed out this is four times his own remuneration, and simply said - as you would perhaps expect - that it is the going rate for the job.

So should we read into the arrival of Mr Carney that there really is a conspiracy for former Goldman Sachs partners to rule the world? Well, Mr Osborne sees it the other way round - saying that Mr Carney had made an important choice to leave behind the even more lavish rewards on offer at Goldman.

Hmmm.

So what is it about Mr Carney that persuaded Mr Osborne to pursue him all year, and not even to give up after Mr Carney initially turned down the job?

Well it is that - unlike all the other serious candidates - Mr Carney has actually run a central bank, and a particularly successful one at that.

Oh, and as a secondary consideration, Mr Osborne has got to know Mr Carney pretty well and likes him. But running a central bank like the Bank of England will be quite a step up from the Bank of Canada, for a number of reasons.

First, the UK economy is in much more of a mess than Canada's

Second, the British banking industry is in much more of a mess than Canada's.

Third, the Bank of England is an institution in a state of some flux, having been criticised by some for failing to stem the great crisis of 2007-8, and about to be endowed with enormous new powers to temper the next financial crisis.

Mr Carney has not signed up for the quiet life.

 
Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

The growing threat to our recovery

The world looks more volatile and scarier than for many years. That will dampen our economic recovery - though that may be the least of our worries.

Read full article

More on This Story

Comments

This entry is now closed for comments

Jump to comments pagination
 
  • rate this
    0

    Comment number 152.

    I think he was appointed because he is outside of the British regulatory frame-work and is on record as being opposed to regulation -- no surprise their for a GS member. If you wanted to hoodwink someone while fixing a cosy regulatory system then an outsider would be a good choice. Carney may be up to speed on international regulation but there isn't a whole lot of that anyway!

  • rate this
    0

    Comment number 151.

    What a coincidence, the Crown’s appointee to the governorship of the Bank of England is the same candidate that Chancellor George Osborne would have chosen had the bank not been independent.

  • rate this
    0

    Comment number 150.

    Recently, Carney ANGERED many Canadian corporate leaders after he criticized them for accumulating cash i.e. “dead money.” He ADDED: “Their job is to put money to work, and if they can’t think of what to do with it, they should give it back to their shareholders.”
    I wonder if it was Carney, FM Jim Flaherty - or both - directing the Canadian Financial Ship.

  • rate this
    0

    Comment number 149.

    In 2011 Carney was name chair of the Switzerland-based Financial Stability Board, a p/t role in which he leads G20’s efforts to improve REGULATION of banks. Cdn Finance Minister, Flaherty conceded that Carney’s departure is a loss, but pointed to the BoE role as evidence that Canada’s economic decisions are being held up as model for other countries.
    We Canadians will miss him.

  • rate this
    0

    Comment number 148.

    Your forecast of Tucker reminds me of Ben Bradlee in All the Presidents Men "Lyndon Johnson's top guy gave me the word they were looking for a successor to J. Edgar Hoover. I wrote it and the day it appeared Johnson called a press conference and appointed Hoover head of the FBI for life.And when he was done, he turned to his top guy and the President said, "Call Ben Bradlee and tell him **** you."

 

Comments 5 of 152

 

Features

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.