Fight inflation, Lamont tells new Governor

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The Independent Online
EDDIE GEORGE, the Governor-designate of the Bank of England, yesterday welcomed 'the first written mandate by the Government for the Bank' as clearly defining the central bank's role.

Mr George said that the Chancellor, Norman Lamont, had spelt out for the first time the prime task of the Bank as being to support the Government to 'bring about a lasting reduction in the rate of inflation'.

Flourishing the Chancellor's statement at a hurriedly convened press conference in the Bank of England's parlours in Threadneedle Street, Mr George said that he placed 'great significance' in Mr Lamont's message of welcome upon his appointment.

Mr Lamont's statement said: 'Eddie George will bring to the job all his many years of experience in the key sphere of monetary policy . . . I have made it clear to the new Governor that his central responsibility should be to support the Government in our determination to bring about a lasting reduction in the rate of inflation, the only sound basis on which sustainable growth and secure jobs can be built.'

Mr George commented: 'I very much agree with the sentiments and welcome the Chancellor's comments.'

The Governor-designate said that the fight against inflation, the pursuit of price stability was 'the foremost issue in our minds, not whether the Bank should be independent (from government) or not'.

Mr George said that the Bank and the Government were 'as one' in their determination to keep the defeat of inflation as their top priority.

Questioned whether he personally thought that the Bank should be granted independence from government, especially on key issues concerning interest rates and the fight against inflation, Mr George said that while he welcomed the idea of an independent Bank, 'this is a matter for the Government, for Parliament, politicians. In any event, the vital thing is that there should be independent thought (at the Bank).'

On whether and under what conditions the UK should re-enter the European Exchange Rate Mechanism, Mr George replied: 'When we and our partners have achieved much closer convergence of our economies.'

He blamed an 'extremely unusual' set of circumstances for the Black Wednesday currency debacle last September, a huge divergence in the European economies caused by German reunification and the protracted recession.

'We had felt all the way through last summer that we were sitting on a rumbling volcano. I don't believe even with hindsight that there was a great deal we could have done.'

Mr George pointed to the extreme narrowness of the various Maastricht referenda results in Europe, and warned governments that the pursuit of monetary unification should be carefully paced; the fate of national currencies was an 'intensely sensitive thing'.

The new Governor admitted that the two recent crises of Black Wednesday and the shutdown of Bank of Credit and Commerce International had been traumatic for the Bank. Mr George was in charge of bank supervision when the Bank co-ordinated the worldwide closure of BCCI following the discovery of massive long-term fraud. He was subsequently criticised in Lord Justice Bingham's report. 'We have been sobered by both experiences - it would be extraordinary if we weren't . . . But I think we've learnt these lessons.

'I am very angry that the fraud could be carried out for so long.'

Rupert Pennant-Rea, deputy governor designate, sat at Mr George's side and said that he had been offered the job only yesterday morning. 'To use the Chris Patten phrase, I was gobsmacked.' He said that on the question of the Bank's indepdendence, 'my views are well known. For the last seven years as editor of the Economist I have said that the Bank should be independent.'