City: Safe pair of hands for daunting task

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NEVER before has the prospect of becoming the Governor of the Bank of England looked so unappealing. You could almost feel a twinge of pity for Eddie George as he announced his appointment in one of the Bank's huge meeting rooms at the end of last week.

Even the manner of the announcement seemed curiously slapdash. The revelation that the favourite had won (the odds on Mr George had narrowed to evens at Ladbrokes by the end of the week) was, for no obvious reason, rushed out unexpectedly and unceremoniously on Friday evening. Rupert Pennant-Rea, the new deputy, had been told of his own appointment only a few hours earlier.

Mr George badly wanted the job but has one of the most unenviable tasks in the City: that of restoring the reputation of the central bank, which has probably never stood lower.

This is partly the result of 10 years under Robin Leigh-Pemberton, who never quite convinced the City that he had mastered the job. The Bank has also been terribly accident-prone. It shot itself in both feet in its handling of the Bank of Credit and Commerce International, and was roundly criticised in the Bingham report. Its standing as the regulator of the City's banks is at an all-time low.

It is also tainted by the Government's economic failures, with the additional unenviable task of working with a lame-duck Chancellor. And, of course, times have changed. Traditionally, the Governor's eyebrows held enormous sway in the City, and Mr George has a fine pair. The trouble is, no one in the Square Mile pays much attention to tradition any more. The Governor's moral authority has all but vanished.

For that reason, Mr George is a sound choice, appropriately reflecting many of the changes in the City and in the Bank's standing there. He is no grandee like Leigh-Pemberton or mandarin like Gordon Richardson before him. He is unlikely to make a magisterial figurehead for the City - but the City does not need or even respect figureheads any more.

As he himself puts it, he has spent little time swanning around the opulent meetings of international and central bankers abroad, preferring to stay at home and tend the shop. Mr George is a technocrat, a markets man with a grasp of detail. That is reassuring for a Government desperately short on economic credibility; for the City after the somewhat remote style of the outgoing Governor; and for the Bank itself, which desperately wanted its own candidate to win.

Mr George looks, therefore, like a safe pair of hands; he is certainly no revolutionary. He says there will be active debate about the Bank's role - but that nothing significant will change.

He completely rejects the view, for instance, that banking supervision should be taken away from the Bank and given to a separate body. He believes that only a central bank can have the necessary overview of systemic market risks and specific bank risks to do the job of regulation thoroughly. If he is to convince the City of this, however, he will have to reform the supervision department so thoroughly that a BCCI could never happen again.

The Bank's relationship with the Treasury may become a little less cosy, but it, too, is unlikely to undergo any radical change.

Although disappointing, it comes as no great surprise that the Bank is not going to achieve independence for the foreseeable future. Britain is not good at altering its institutions, even when changing times seem to require it. The most Norman Lamont would say on Friday was that the Bank was there to 'support the Government in our determination to bring about a lasting reduction in the rate of inflation.' (And that, believe it or not, is the first time in 200 years that a Chancellor has ever attempted to define the Bank's role.)

Publicly, Mr George insists that keeping down inflation is more important than the Bank's independence. He is careful not to say whether he thinks low inflation could be better achieved by an independent Bank. Privately, however, he certainly supports the idea of independence. As editor of the Economist, Rupert Pennant-Rea has already done so publicly.

The best that supporters of an independent central bank can hope for is that if the politicians change their minds, there is a Governor and deputy governor who are willing and able to put independence into practice.