Despite rumours of rifts with the Government and off-the-record backbiting, the Governor of the Bank of England, Mervyn King, was yesterday warmly invited by the Prime Minister to serve a second five-year term in office, starting on 30 June.
Sincere or not, pleasantries were exchanged yesterday in the courtly way of such events. The Prime Minister's spokesman said that Mr King had been a "first-rate Governor". The Chancellor of the Exchequer, Alistair Darling, declared: "I am delighted that Mervyn King has been appointed. He has played a key role in delivering macroeconomic stability, and his leadership and experience will continue to prove invaluable to the Bank of England." In turn, Mr King said: "I am honoured to accept reappointment as Governor of the Bank of England and look forward to working hard with my Bank and MPC colleagues on the economic and financial challenges that face us all."
Formally appointed by the Queen on the advice of the Prime Minister, who is in turn advised by the Chancellor, the choice of Governor is deeply political. Over recent weeks, the Leader of the Opposition, David Cam-eron, has made much mischief at the expense of Mr Brown at Prime Minister's Questions, with incessant queries about the chances of Mr King's reappointment. Yesterday, the Liberal Democrat Treasury spokesman, Vincent Cable, said: "It is outrageous that he has been messed around by the Prime Minister and Chancellor for so long. There appears to have been a concerted campaign by 10 and 11 Downing Street to undermine King's position. Unlike most, he actually had the guts to suggest that it is not the job of the authorities to run around bailing out greedy and reckless bankers."
The trauma of the collapse of Northern Rock last year poisoned relations between the "tripartite partners" – HM Treasury, the Financial Services Authority and the Bank of England – with subtle attempts by all three to offload the blame for regulatory failure. Most damagingly, Mr King was reported as saying a few weeks ago that the Government could, months before the crisis broke, have acted more urgently to reform the depositor guarantee scheme and laws to protect failing banks – and thus prevent the Northern Rock disaster. Mr King is said to have thought that Mr Brown and Mr Darling failed to do so because they were "paralysed", and "unable to focus because morale throughout the Government is so low".
Mr King denied saying that when questioned by the Treasury Select Committee but the damage had been done and the journalist concerned has stuck to his guns. In return, Mr King was accused of "naivety" by Treasury sources. Tensions also arose, intentionally or not, when Mr King seemed to want to stress the responsibility of the Chancellor for policy decisions on Northern Rock, while the Treasury appeared to stress the pre-eminent role of the advice of the Bank in such matters.
Speculation had been growing that Mr King would be sacked by his political masters for the Northern Rock debacle, for the confusion created by the Bank's initial refusal to bail out failing banks, and its subsequent U-turn on that policy, and its alleged failure to follow the US Federal Reserve and European Central Bank in releasing more generous amounts of liquidity to the credit markets.
For his part, the Governor maintains that the Bank has done just as much as its counterparts, but in a different fashion, and emphasises the continuing dangers of "moral hazard" in rescuing failing banks.
Any attempt to scapegoat Mr King would have been fraught with political danger. Appointed in 2003 to succeed Eddie (now Baron) George, Mr King was a deputy governor at the Bank from 1998 to 2003, and its chief economist from 1991. He is capable of delivering an impressive tour d'horizon of the world economy without notesor hesitation.
He follows Aston Villa, and sporting analogies, such as the "Maradona theory of interest rates", pepper his pronouncements.
Mr King married his long-term partner, Barbara Melander, a Finnish businesswoman, last year. The Governor turns 60 on 30 March, and his next challenge will be what he calls the "difficult balancing act" of setting interest rates as inflation accelerates and growth slows.Reuse content