Accessibility Page Navigation
Style sheets must be enabled to view this page as it was intended.


George Kerevan

VENI, vidi, vici. Last week Mark Carney PhD, Governor of the Bank of England came to Scotland to talk about a common sterling currency between an independent Scotland and the rUK. He came, he saw, but did Carney conquer?

Actually, I thought the media totally missed the real story regarding Carney’s visit. At root it was nothing to do with his elegant, technical speech on what constitutes an optimum currency area – a speech he could give anywhere, any time.

Rather Carney was up in Edinburgh so he and Alex Salmond could eyeball each other in the flesh.

If Scotland does vote Yes come September 18, the future monetary policy of the entire British Isles will be in the hands of three men – the Canadian Mark Carney, the Scot Alex Salmond and (at least till next year’s UK general election) the Englishman George Osborne.

If Carney tips towards a currency union, or at least finds it doable, then that is what we will get.

So the chemistry between Salmond and Carney is pivotal. And the word is that Salmond thinks that Carney is – in Mrs T’s immortal phrase about Gorbachev – someone he can do business with.

Always remember that Salmond is an economist by trade and loves nothing more than talking numbers and economic technicalities. He frequently shows his impatience with gentlemen of the press who are ignorant of the economic subtleties, or who (if Carney’s Edinburgh press conference was anything to go by) have never bothered to read the voluminous reports produced by the Scottish Government’s Fiscal Commission on the nitty-gritty of making a sterling zone work.

Salmond is an economic geek and clearly enjoyed his relationship with Carney’s predecessor at the Bank of England, Mervyn King. By all accounts too, King enjoyed working with Salmond. The First Minister is anxious to create the same rapport with Carney.

Another key point to remember about Salmond is that his true economic mentor was Grant Baird, who worked at the Bank of England before becoming Chief Economist at RBS (when RBS was a real bank and not a casino). Baird hired Salmond as his deputy at RBS, where the future First Minister specialised in researching the North Sea oil industry – indeed, he produced the first serious, regular statistical series on the industry.

Grant Baird always retained close links with the Bank of England: there he had been the boss of Eddie George, who became Governor of the Bank from 1993 to 2003.

Through Baird, Salmond became something of a Bank of England insider, or at least someone who knows the personalities and gets his phone calls returned. Again, the more feral and ignorant of the London media always miss the fact that Salmond is no Scottish hick when it comes to understanding the Bank or the UK Treasury. Hence Salmond’s recent working relationship with Mervyn King.

King is also a trained academic economist but during his career at the Bank and then as Governor (from 2003 to last year) he evolved more into a central banker concerned with the stuff of making monetary policy work. After the SNP’s majority victory in the 2011 Holyrood elections, King and Salmond started discussing the detailed options for a monetary union should independence occur. King’s approach was that of the consummate technocrat: how to make a common currency function.

By all accounts, King privately thought this the best option for rUK. Salmond and King obviously bonded over the techie stuff, especially regarding how to give an independent Scotland representation on the Bank.

This positive King-Salmond partnership was also influenced by King’s brittle relations with two Chancellors of the Exchequer – Alistair Darling and George Osborne. It is no secret that King did not rate either of these ministers. During the 2008 banking crisis, when RBS and HBOS faced imminent collapse, Darling was much more passive in the face of economic disaster than he subsequently claimed. King had to stiffen his political spine to nationalise RBS.

Later, King was inclined to use the nationalisation of RBS and Lloyds/HBOS to order these banks to pump more lending into the ailing UK economy. To King’s dismay, Darling refused point blank because he was worried about being thought of as too left wing.

(Incidentally, there is a story doing the rounds that Darling was once a Trot and close to the International Marxist Group. As an old IMGer, I can lay that one to rest – he was always on the Right. True, Darling often voted with the Left when on Lothian Regional Council, but only to seek a Labour parliamentary seat – a point made constantly in Edinburgh at the time. Paradoxically, John Mulvey, who was Labour Leader on Lothian region when Darling was a councillor, now supports the Yes Campaign.)

When the Tories arrived in 2010, Mervyn King again urged the new Chancellor, George Osborne, to direct RBS and Lloyds to increase lending. Like Darling, Osborne refused though for different reasons. Osborne is anxious to return the banks to private ownership as soon as possible and brooked no state interference with managerial prerogatives, no matter the economic crisis.

In retirement, Mervyn King has to endure the official period of Civil Service purdah before he can publish his memoirs. They will make interesting reading.

Against this political background, it is understandable why the two economists, King and Salmond, found it easy to get along. At the same time, Salmond’s Fiscal Commission – the group of experts tasked with hammering out the Scottish Government’s case for a common sterling zone – was put together with some very big names indeed. The Commission includes Jim Mirrlees, who won the Nobel Prize for economics in 1996.

The point about Mirrlees is that he was Mark Carney’s academic supervisor when the new Governor of the Bank of England was doing his PhD at Oxford. Carney made a gracious reference to Mirrlees at the start of his Edinburgh speech – they keep in touch. Anyone with ears to hear knew that Carney’s mention of Mirrlees was clear indication that the Governor was aware his old tutor is a key member of the Fiscal Commission drawing up the blueprint for a common currency.

Carney is a very different figure from Mervyn King. If anything, he is more of a technical economist than he is a central banker. But that could be an advantage to Salmond as they are both very alike in their intellectual temperament. Certainly they seem to have enjoyed their private discussions in Edinburgh.

The brunt of Carney’s public message regarding a sterling zone is simple: he is only the bus driver.  He can advise on how much petrol will be needed for the journey, and what the road conditions will be like. But as for the eventual destination, that is up to the passengers. In other words, Mark Caney and The Bank of England will manage a sterling zone if one is agreed to by the Scottish Government and the rUK Treasury.

Of course, the devil in any common currency arrangement lies in the nature of the technical and regulatory details that are the subject of the final negotiations. But I suspect both Alex Salmond and Mark Carney would enjoy getting down to those technicalities. That could leave George Osborne, or Ed Balls, playing the gooseberry.