Bowles Invokes Lagarde in BOE Push as Turner Outlines QE Views
European Parliament lawmaker Sharon Bowles invoked Christine Lagarde at the International Monetary Fund as an example of why she should be Bank of England governor as rival candidate Adair Turner spelled out his views on monetary policy.
“There’s a case to be made for a different kind of governor,” Bowles, 59, said in a phone interview. “A parallel I make is the IMF. When it was Dominique Strauss-Kahn, he was a top economist. When we have Christine Lagarde, that’s not what she’s doing -- it’s a lead from the front, it’s a diplomacy thing, negotiation thing.”
Bowles, chairwoman of the Parliament’s Economic and Monetary Affairs Committee, cited those skills this week when she applied to be governor, competing with potential candidates including Turner, chairman of the Financial Services Authority, and Bank of England Deputy Governor Paul Tucker. In a speech in London late yesterday covering monetary policy, the financial crisis and the euro-area turmoil, Turner said quantitative easing may have diminishing returns and that central bankers need to continue to innovate.
“QE alone may be subject to declining marginal impact, the economy facing a liquidity trap in which replacing private sector holdings of bonds with private sector holdings of money has little impact on behavior and thus on demand,” Turner said. “So optimal policy also needs to include a willingness to employ still more innovative and unconventional policies.”
Turner, 57, also said the U.K. won’t allow its lenders to be supervised by the European Central Bank and “does not need to, and will not, be part of that euro-zone banking union.”
The speech was Turner’s last at the Mansion House in the City, as London’s financial district is known, before the regulatory regime changes and the FSA’s powers are transferred to the Bank of England. He also said that if the euro area fails to stem the debt crisis, it needs to have a plan to avoid a disorderly breakup.
The U.K. has “an enormous national self-interest in the euro zone either taking the steps required to succeed, or, if that is politically unattainable, dissolving in a controlled rather than chaotic fashion,” he said. “We need to use what limited influence we have to help achieve the best possible way forward.”
The next governor of the Bank of England will have increased powers, including supervision of U.K. banks, to add to their monetary-policy responsibilities. Tucker, 54, remains the favorite for the job, according to odds from William Hill Plc. The bookmaker has him at 4-5, meaning a 5-pound ($8) winning bet would yield a 4 pound profit. Turner is at 3-1, followed by Bank of Canada Governor Mark Carney and Independent Commission on Banking Chairman John Vickers at 7-1. Bowles is at 16-1.
Speaking in Tokyo today, Tucker said the central bank’s new powers aren’t going to be about “box ticking or a lot of detail. It’s going to be about talking to CEOs and their boards and seeing where they are making money.” He also said it’s vital to have resolution strategies for banks.
Bowles said that her comments throughout the euro-zone crisis identify her as someone who understands markets, and that “in some ways I have more strengths on the markets side than an economist does.”
She studied chemical physics and math rather than economics, and is the only woman and lawmaker known to seek the job. Lagarde, 56, succeeded fellow French national Strauss-Kahn as IMF managing director. Lagarde is a lawyer by training, unlike her predecessor, who is an economist.
Lagarde and I have “very similar kind of strengths,” Bowles said. “She and I are very different people, but there are similarities there.”
She also said the U.K. central bank needs a “different kind of governorship.”
“I applied because the Bank of England is undergoing a big change, in that it is not going to be just setting monetary policy, it is going to have financial stability and supervision,” she said. “If it’s predetermined for a top economist on monetary policy, who will go and make very erudite speeches on monetary policy, then that’s the same as before.”
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