Monetary policy need not be a political football
Tuesday 14 January 1997
Which makes the Chancellor's meeting tomorrow with Mr George a more than usually interesting one. Mixed signals on the economy provide the Chancellor with the perfect excuse for relaxing the strict monetary diet. It will be difficult for Mr George to insist on a tough regime during the next few months without appearing to be meddling in politics himself.
There could be no better illustration of the need for proper independence for the Bank of England, and the sooner the better. The present arrangement of publishing the minutes of the meeting several weeks later does not insulate interest rate decisions from political considerations. Labour's gimmick of setting up a monetary policy committee to give secret advice would be not, as proposed, be much of an improvement either. Interest rate calls are a matter of judgement, and a clever Chancellor can always make his decision look reasonable, especially if the committee is divided in its advice.
Mr Clarke would be well advised to surprise the City with a rise in interest rates this week. To keep inflation below 2.5 per cent he must react to mixed signals, and not wait until every last indicator points to higher prices before he acts. But what he should do and what he will do are not necessarily the same thing. If he decides against a rate increase he will be aided by the fact that many, perhaps most, City economists do not take the inflation target seriously. They want the instant gratification of faster growth. Many of these analysts were arguing yesterday that there is no need for base rates to rise now because the futures market is expecting only a 1 percentage point increase before the end of the year.
If we already had an independent Bank of England, the level of base rates would be a bit higher than they are now, but long-term interest rates would be lower. There would be less risk of a short-term inflationary binge, and a much greater chance of the sustainable growth Mr Clarke says he wants.
The long arm and big nose of Mr Van Miert
There are, it seems, very few things in this world beyond the reach of Karel van Miert, the European Competition Commissioner. If it is within his jurisdiction to veto the merger of two American aircraft manufacturers, then you can bet that the alliance between British Airways and American Airlines was always going to fall comfortably within his writ.
So it is that Ian Lang, who as President of the Board of Trade is minded to let the alliance proceed, has been sent the Brussels equivalent of a threatening lawyer's letter. Approve this deal as it stands and we'll see you in the European Court of Justice, is the gist. There is a precedent for this sort of Euro interference in the shape of the extra conditions that BA was forced to submit to when it swallowed up British Caledonian a decade ago.
On this occasion BA expected to be cleared without Brussels' intervention, particularly as the deal has already gone through the hoops at the Office of Fair Trading and is about to be crawled all over by the US Justice Department. Mr Van Miert has other ideas. He believes that the alliance constitutes abuse of a dominant position, that the conditions imposed by the OFT are nowhere near sufficient and that, in any case, it would be illegal for BA to sell the take-off and landing slots it has been told to give up.
Strong stuff. But does Mr Van Miert really have the right to poke his nose into what is essentially a domestic affair affecting US and British consumers? If Mr Van Miert's complaint was that the alliance undermined competition across Europe then he would have a case.
But that is not his argument. Indeed, if anything, it will probably improve the lot of air travellers on the Continent by providing greater competition for other national flag carriers.
His argument instead is that it will harm the lot of UK and US passengers. If that is the case he needs to explain why he allowed through other such alliances involving the likes of Lufthansa, KLM and Sabena without so much as a raised eyebrow. The reality, as usual, is that the regulators in Brussels are playing catch-up and what better subject to cut their teeth on than BA, particularly when the airline and the Government had made it plain they thought it none of Mr Van Miert's concern.
If he must intervene, then he has an obligation at the very least to re-examine all the other alliances so far agreed. Preferably, however, he should keep his nose out.
Tories find time for an alpine conference
For an event which boasts that some companies rearrange their board meetings so that senior executives can attend, the World Economic Forum annual conference in Davos, Switzerland, is sometimes more instructive for those not going than those who are. Billed as Europe's premier business networking conference, few of those in a position to hitch their wagon to the international conference circuit miss it gladly, for with its alpine setting and none too taxing schedule, it is generally thought a bit of a peach.
So who's not going this time? Quite a lot of the Middle East for a start. The conference coincides with Ramadan, the annual Moslem month of fasting. There's no one from our government in waiting, New Labour, either, which given that the conference is to be attended by three Cabinet members, might seem a bit curious. Tony Blair, who was invited, has written back to say he cannot attend because of uncertainty over the election date; he doesn't want to interrupt his "campaigning schedule". Gordon Brown, the shadow chancellor, apparently isn't interested in the conference themes of globalisation and the world-wide IT revolution either. He hasn't replied, anyway.
And what of the existing Government? Can it, any more than Tony Blair, afford to miss out on a campaigning opportunity? A cynic would say that the answer lies with a Government that knows its number is up and therefore doesn't actually have a lot of work to do.
That and the not unrelated issue of job prospecting, for which there is plenty of opportunity at Davos. New Labour have big jobs to look forward to; the present lot must already be focused on other things.
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