Insights from the UK and beyond
Mervyn King’s warning to the government
The unusual foray into politics by Bank of England Governor Mervyn King, in suggesting there should be no more tax cuts or spending rises in next month’s budget, has been widely interpreted by the newspapers as a blow to Gordon Brown but a source of secret satisfaction to the Treasury.
Chancellor Alistair Darling, several say, was not happy with Brown’s reported budget plans to offer voters more jam before they had digested the 25 billion-pound fiscal package in last Autumn’s Pre-Budget report.
King’s message was interpreted as bad news for Brown just as the Prime Minister embarks on a whrlwind tour of the Americas to drum up support for agreement at next week’s G20 meeting on a major international programme of fiscal stimulus.
Most papers support the Governor.
“Mr King was right and timely in his message,” said the Times. “Fiscal profligacy by the government since well before the last election has sharply constrained the ability of UK policy makers to borrow and spend more.”
In a comment piece, the paper’s business editor David Wighton notes: “Mr King’s intervention hardly strengthens the Prime Minister’s hand as he tries to rally support for further measures at the G20 meeting.”
Damian Reece in the right-wing Daily Telegraph commented: “King was right to warn the government over further public spending splurges. Given the long-term damage Labour has helped cause to the economy and sterling, we really can’t take much more punishment.
Some papers highlight the extraordinary nature of King’s intervention into the world of politics.
“His warning yesterday about the dangers of a further fiscal stimulus, which he said would increase the already alarming levels of public borrowing, was unprecedented,” noted Daily Mail City Editor Alex Brummer. “King has trespassed into very dangerous territory. He has placed himself at the heart of the battle over how best to deal with the worldwide economic slump.
“By challenging Mr Brown on budgetary policy the governor has exposed the sharp differences over the conduct of economic policy at the centre of government. This potentially calamitous public row can only add to the nervousness of financial markets about the ability of Labour to navigate through the worst crisis in generations.”
Brummer added: “The governor could well have an ally in the Chancellor, Alistair Darling, who is known to be less gung-ho than the Prime Minister, who is desperate, as host of the forthcoming G20 summit, to follow President Obama’s lead in advocating more public spending.”
The Independent said “nothing as overt as yesterday’s warning has happened in ages.”
“Reluctantly,” it added, “Brown is being pushed by Mr King into the same camp as Germany and France, both of which have already enacted quite big fiscal packages but insisted they won’t go any further. ”
“Should King be saying these things? Letting the public finances go to hell in a handcart is surely a matter for Government and voters? Well, maybe he should be keeping his counsel, but Mr King was asked a straight question, and it would have been disingenuous to have given an answer he didn’t believe in. What was he supposed to say? Go for it boys?”
“It’s only a pity Mr King didn’t sound these same warnings three years ago when they were still capable of doing some good. Instead of which the Government was allowed to go for broke, when it should have been reining in.”
The Financial Times noted: ”Mr King’s warning puts him in a position where he could be accused of constraining the options of elected politicians and puts the Treasury on notice that the Bank might feel the need to take offsetting action if a second stimulus package was proposed.”
The Daily Mirror was critical of King. Under the heading “Merv’s far too Nervy,” it said the Bank of England was in no position to lecture Brown.
“If (it) had cut interest rates faster we might not be in such a deep recession,” it said in a leader column. “The caution and indecision of the country’s chief banker … has been a handicap in this global financial crisis.”
“Tough times demand bold action — not the caution and delays that are the hallmarks of King’s governorship of the Bank of England.”