Monday, 22 June 2009
The Mansion House speeches are normally more of a back patting exercise rather than the substantial debate of economic policy seen on the 17th June. The reason for this is the collapse of the financial system and in particular the near-death of the banks last October. All of this has resulted in the biggest rift between the government and the Bank of England since Gordon Brown (as chancellor) freed them 12 years ago.
In many respects Alistair Darling is lucky to be making a speech at all after the recent cabinet reshuffle. Nevertheless the speech is representative of new Labour policy and make interesting reading. Firstly, Mervyn King stated that the central bank should not only take charge of macroprudential regulation but should also be given new powers in order to do so effectively. This echoes the position of the Conservative party but in stark contrast, Darling suggested that "to concentrate on institutions seems to me to miss the point". In effect Darling said that no one system of regulation has protected a country though this view in itself seems to be missing the point and also appears naive of the situation.
The most interesting exchange though took place on the European level. This comes after a meeting of European leaders on the 18th and 19th June where it was recommended that more regulatory power be shifted to Europe. The proposals would include a 'European Systemic Risk Board' (ESRB) that would look out for dangers to financial stability then suggest how to avoid them flaring up any further. On top of this a 'European System of Financial Supervisors' would aim for more convergence in financial regulation.
In general I am an anti-European man myself but if you had asked me in 1957 whether I supported the newly formed European Economic Community (EEC) I would have said yes. Any institution which facilitates free trade is good in my eyes. This is why I support these reforms even where pro-European new Labour have some concerns. Darling agrees that there should be more co-operation on both a European and global level but dislikes the proposed commanding role of the head of the European Central Bank as well as believing bank supervision should remain a national responsibility. To a large extent I agree with this position. If, as happened with the EEC, Europe begins sticking it's oar in where it is not wanted then we may not only lose our own sovereignty but, particularly here, land ourselves in serious economic trouble. However, it should be noted that when European Finance Ministers met on the 9th June it was recognised that European supervisory ruling should not impinge on national fiscal sovereignty.