Central Bank Independence


Support for multilevel governance seems a prerequisite for any Lib Dem. Devolution from the centre to the periphery, from Westminster to Holyrood and the Welsh Assembly is one example. There has also been devolution upwards to the supranational institutions such as the EU Statesman are no longer the preserve of government; governance is now very much a fixed concept.

However, there has been devolution or delegation to other institutions besides devolved bodies and the EU. The Bank of England’s independence is an interesting point in case. If LDV readers do support Central Bank Independence as a theoretical concept in the abstract, then its internal consistency should also have an external consistency when applied to the specific case of the Bank of England.

At this point, I would really like to start a debate on the following:

What should the size and scope of the Bank of England’s remit be?

This topic ties into the wider future vision of Europe. As a pro-EU party, the Lib Dems might have to, at some stage post-crisis and post-referendum, have to present a compelling case for entry into the Euro. The twin criteria for this stage occurring means that it is a headache for many years down the line: the Eurozone crisis is unlikely to resolve itself fully for some years yet and the EU referendum is still some way off. The latter, assuming there is an ‘In’ vote, will mean that Britain will have retaken her vows.

Given that the referendum will be a choice between the Cameron reforms and Brexit, anyone who wanted to vote for the status quo to stay exactly as it is will have to choose between staying and leaving. The status of Britain as a non-Eurozone EU member state might still be preserved with the Cameron deal, but only the current status quo guarantees it – a status quo soon to be obsolete.

Faced with this choice, I hope, as a passionate Europhile, that Britain votes for ‘In’. However, it might be worth coming up with a set of possible responses,if not a full-blown homogenous and watertight answer, when asked on the likes of BBC Question Time: “If Britain votes to stay in the EU, would the Lib Dems use this is an endorsement from the British people of eventual admission into the single currency?”

This would of course have implications for our nation’s Central Bank and its independence given the changing remit of the European Central Bank since the crisis.

I would really like to know what LDV readers think as the Lib Dems have, if nothing less, a respected and unequivocally pro-EU stance, fiscal responsibility forged in Coalition Government and third, a strong commitment to devolution and autonomy. These three factors should propel the Lib Dems to consider how Central Bank Independence at home might affect future relations between Britain and the EU.

I would really like to hear what my fellow party members think on this issue.

* Michael Cooke is the writer's pen name. He is an economic and EU policy analyst within local government with a Master's degree in EU Governance. The identity of the author is known to the LDV team.

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  • Daniel Carr 9th Nov '15 - 3:19pm

    As many predicted prior to the euro’s arrival, monetary union sans fiscal transfers is not a recipe for success.

    I’m personally quite relaxed about deepening the single market without adopting the euro and surrendering independent monetary policy. I imagine most of the public feel the same, especially given the recent crisis with Greece.

    Though there are some gains to be had in adopting a common currency (less friction in transactions / tourism), my reading is that few economists would judge them to be worth the risk of entering into the current Euro arrangement.

  • Daniel Carr 9th Nov '15 - 3:35pm

    For anyone interested in a good explanation of why the joining the Eurozone would be a bad idea, see:

    a) A concrete article explaining the potential economic pitfalls of adopting the Euro (Finland as a case study):

    b) An old but spot-on article by Friedman on the problems of monetary union from a more theoretical basis:

  • Eddie Sammon 9th Nov '15 - 4:45pm

    I thought this was a good topic for discussion until it started talking about the UK possibly joining the Euro. Discussions for the UK joining the Euro should be off the table for at least 20 years.

    I don’t really see the two matters as related. I’m not a big fan of central bank independence – it seems to be encouraging the idea that politicians don’t need to think about monetary policy much when in reality it is a big part of a country’s economic policy. I don’t think it should be outside of democratic control.

    I am, however, a sceptic in the ultra loose monetary policy consensus. A way of breaking this needs to be found without hammering pension funds. At the moment our monetary policy looks a bit like musical chairs with everyone hoping the music doesn’t stop playing.

  • Richard Underhill 10th Nov '15 - 2:51pm

    The single currency is a misnomer, deriving from the days of a much smaller EU, before the currency was named the Euro.
    Using the wrong language implies two questions
    1) should the UK join the Euro?
    2) should all member states be in the Euro?
    Only the UK is having a referendum on membership of the EU. We can stay with the position taken in the coalition negotiations in 2010, not in the forseeable future. The eurozone members need to enforce their own conditions of entry. The rules depend in part of memories of hyper-inflation in Germany in the 1920s and 1930s and competitive devaluations by many countries.

  • john Stevens 11th Nov '15 - 8:30am

    Interesting piece. The reality is, however, that this debate will only be launched by a crisis, such as the one that would arise were we to vote to leave the EU, or once the full implications of a more integrated Eurozone, after the next treaty, become apparent.

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