In a speech that many political hacks view as a bid to support Britain remaining in the European Union, Bank of England governor Mark Carney noted a mixed but mostly positive economic story for the country’s involvement in the bloc.
The gist of Carney’s speech, which can be read in its entirety online, is best summarised by the following paragraph near the end:
“Overall, EU membership has increased the openness of the UK economy, facilitating dynamism but also creating some monetary and financial stability challenges for the Bank of England to manage. Thus far, we have been able to meet these challenges.”
(Politicians, regulators and businessmen tend to use the word “challenge” when they mean “problem”. George Orwell would be irked.)
Some in the press have argued that Carney was pressured by Tory prime minister David Cameron into making some statement about the EU to encourage people to vote for the status quo in the referendum, due to take place in 2016 or 2017.
The governor’s remarks about potential problems for an independent Scotland continuing to use the pound were viewed as influential in the country’s 2014 poll on leaving the United Kingdom.
Even so, much of Carney’s conclusions are obvious.
He pointed out the benefits of a single market across the EU include “increased specialisation, enhanced competition, and greater possibilities for diversification and risk-sharing.”
He then also noted that Britain’s flexible labour markets had allowed it to better profit from the EU than many of the other members, and that lack of regulatory protection for incumbent firms improves the rate at which businesses are created:
“Broadly speaking, the evidence suggests that UK has successfully harnessed the benefits of openness afforded by its EU membership while avoiding some the drawbacks of reduced flexibility from which some continental European economies suffer.”
Unfortunately closer integration of economies also facilitates the spreading of financial shocks, Carney said.
Given Britain’s financial openness it is more vulnerable than most countries in this respect, he added, underscoring “the importance to the UK of further building the resilience of the euro area”.
He later warned of the dangers of the eurozone acting against the interests of the non-euro members, a particularly problem given that only Britain and Denmark have negotiated opt-outs from the shared currency, whilst other countries in the bloc are officially expected to adopt the euro at some stage.
“It is important that any future EU legislative measures, designed to meet the needs of deeper integration in the euro area, do not adversely affect the Bank of England’s ability to ensure the stability of the UK financial sector or compromise the single market.”
Carney started and ended his speech talking about the Sheldonian, the Oxford building where he gave his remarks:
“The genius of Wren’s ceiling was its inspired interlocking beams, individually insufficient to span the Sheldonian’s diameter, but collectively arranged so that each could support another, perfectly balancing the forces of those pushing down with others pushing up, resting, ultimately, on the foundations Wren began in 1664.”
We think it might be a metaphor…
Image Credit – Mark Carney, November 2013 by Financial Stability Board