A sensible solution to the Eddie George problem

`Giving the Governor a limited extension of, say, just two years would allow time enough for the newly independent Bank to get properly bedded in while providing the financial markets with the sort of continuity they want. To install a Labour placeman so soon after independence might look like political interference'

Perhaps it has something to do with Diana's death, but things have yet to pick up significantly in the world of business and finance from their usual state of summer stupor. I might therefore be forgiven an unashamed meander through some matters of general interest. First, who's going to be the next Governor of the Bank of England?

The save Eddie George campaign (go on, give him another term) has apparently won a powerful ally - Tony Blair. Nobody actually knows what's in the Prime Minister's mind, but in the fevered imaginings of Whitehall and City gossip, Mr Blair has thrown his weight behind a second term for the Governor of the Bank of England.

This is actually an entirely plausible rumour. Since Mr George dramatically threatened to resign over the Government's plans to strip the Bank of its supervisory functions, relations between the Bank and the Government are said to have improved quite markedly. Mr Blair is more than happy with the way the Bank has pursued monetary policy since it was given independence. The strength of the pound continues to cause some concern, but on the whole the Government could scarcely have hoped for a more sunny economic disposition. After throwing its initial wobbly, the Bank has also buckled under and demonstrated professionalism and speed in handing its supervisory powers over to the new SuperSib. It is wrong to suggest, as some have, that the Bank is continuing to be obstructive or even that this is what the Treasury thinks.

In other words, the Government has no reason to feel unhappy with Mr George. So why change him? There's a flip side to this argument, however. Why not change him, the Chancellor, Gordon Brown, might ask? Mr George will have been there five years by the time his contract comes up for renewal next July and that's quite long enough. This is an opportunity to put our own man in at the Bank so let's take it, some members of the Cabinet will be saying.

It is from this to-ing and fro-ing of the argument that the idea comes for giving Mr George a limited extension of, say, just two years. That would allow time enough for the newly independent Bank to get properly bedded in while providing the financial markets with the sort of continuity they want. To install a Labour placeman so soon after Bank of England independence might look like political interference. The trouble is that the new Bank of England Bill doesn't allow for a two-year term. It's five years or nothing. The clause could be changed but that would risk undermining the idea of independence by giving the Government scope for disposing of awkward Governors pretty much as it pleased.

So any extension of this sort would have to be on the basis of an informal understanding. It would be understood that the Governor would resign after two years and make way for Gavyn Davies of Goldman Sachs, or who ever else happened to be in favour at the time. This seems to make such eminent sense that it is hardly surprising that the idea has assumed the status of truth. This is actually what has been decided, many are saying, and indeed the prophesy may well become self-fulfilling.

But actually nothing has been decided, nor does it need to be for six months or more. There is still everything to play for in the battle for the Governorship.

Can anything be read into the appointment of Steve Robson to the position of second permanent secretary at the Treasury? Under the last Government, Mr Robson was the Treasury's privatisation expert so it might have been expected that he would suffer the same fate as Sir Patrick Brown, recently ousted by John Prescott as permanent secretary to the Department of Transport because of his role in first bus, then water, and finally rail privatisation.

Instead, Gordon Brown, the Chancellor, has chosen to promote him. Why? There are all kinds of theories on this. For entertainment value, try the following. Morale at the Treasury is rock bottom. Career civil servants are being bypassed in the formulation of policy and are still hopping mad about control of monetary policy being ceded to the Bank of England. What are they going to do now?

Worse, they suspect the Chancellor is about to shake the whole place up in a way that will be highly uncomfortable for everyone concerned. Furthermore, the perception, if not the reality, is that policy is being run and implemented on the hoof by a small coterie of special advisers led by the youthful Ed Balls. The Chancellor needed to do something to correct this view and so he gave a career Treasury man a leg-up in a way that ought to satisfy the troops and indicate that there are no hard feelings about what everyone did under the previous Government.

Actually, there may be just the tiniest element of truth in this explanation but the real reason is a rather more obvious one. Mr Robson is a class act and he's also new Labour through and through, a sort of reformed Thatcherite - a bit like Tony Blair really. It's amazing he's still at the Treasury at all, given the number of highly paid job offers he must have had from the City. The Chancellor would have been mad not to have put him at the centre of things. As it happens he's been close to Gordon Brown for some time. He's also a long-time advocate of the way Labour is reforming City regulation.

In other words, he fits the new administration like hand in glove. Were it not for the fact that he was already there, Mr Brown might even have wanted him as one of his special advisers.

I'm not a freemason, honest, but someone's got to stick up for the City's archaic form of local government. This may sound like trying to defend the indefensible but the case for reform is not nearly as clear cut as might be thought. Certainly the reforms proposed don't sound like much of an advance.

It has to be admitted that the present system does seem a little medieval. The electorate is confined to residents, of which there aren't many, small businesses, accountants and lawyers. The great bulk of people who work in the City and the companies that employ them have no say at all. Even if elected, an alderman can be blackballed as unsuitable. No reasoning is required.

But when all is said and done, no one can fault the way the Corporation of London is run. The Square Mile seems to be relatively good and efficient at administering its affairs, and despite its lack of accountability, there's been no recent case of corruption. Furthermore, the City has an unrivalled record in promoting Britain and winning inward investment. It is also Britain's biggest export earner. There is no evidence that any of these things would be improved by expanding the franchise. On the other hand, anything's better than being merged with the London borough of Islington and if giving the foreigner a few more votes is the price of independence, then I'm all for it. Now what did I do with that apron?