Bank of England's New Head Joins Bid for Independence

Article excerpt

THE case for extending women's liberation to the Old Lady of Threadneedle Street - otherwise known as the Bank of England - is strengthening, according to officials close to Eddie George, its incoming governor.

But Prime Minister John Major appears to be set against cutting the bank's links with government, despite arguments advanced by Norman Lamont, his ousted chancellor of the exchequer.

Mr. Lamont's call for an independent Bank of England was a key feature of his bitter resignation speech June 9 in which he accused Mr. Major of manipulating central bank interest rates for political advantage. Lamont told the House of Commons: "Britain is one of the few countries where monetary policy remains firmly in political hands, and the pressure on politicians to take policy decisions for political reasons can be quite irresistible." He added: "With an independent bank, policy would be more credible, and it would give us the necessary discipline for keeping inflation down on a permanent basis."

Mr. George, who takes over as governor from Robin Leigh-Pemberton in July, immediately authorized the issuing of a statement which said that there were "clear advantages" in making the central bank responsible for achieving price stability, "if only because this may enhance the credibility of policy." This brought George into conflict with Major who said that although a case could be made for independence, politicians should still be able to call to account "those who make decisions about monetary policy."

Lamont's charge of interest-rate manipulation apparently refers to last January when, in the midst of depressing economic indicators, Major ordered a rate cut while touring India. Analysts in London's financial district said it was a panic reaction.

The pro-independence lobby won strong support June 14 from the Bank of International Settlements (BIS), the so-called "bankers' bank" in Basle, Switzerland. In its annual report it called for all European central banks to be independent of government. The BIS said that during last year's currency turbulence, which forced Britain to devalue the pound, short-term political interference in setting interest rates had undermined the credibility of many currencies. …