It was only last week that Bank of England governor Mark Carney gave a speech in Oxford to explain the central bank’s view on the UK’s membership of the EU. But can anyone recall what he said beyond the generalities? Has his intervention added to the sum of human knowledge? And will it make any difference to the result of the coming referendum? The answer, surprisingly, is no.
This is remarkable because it was with not a little trepidation that many campaigners for the UK to leave the EU learnt of the governor’s planned speech.
It was, after all, the intervention by, first, the governor and then by the chancellor that had sunk the SNP’s currency plans for an independent Scotland.
Yes, Scotland could continue to use sterling, said Carney in a speech in Edinburgh last year. But due to the risks for the rest of the UK, there would have to be arrangements in place that would – to all intents and purposes – mean there would be no economic independence for Scotland at all.
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Carney pointed out the potential downsides to a new currency union between an independent Scotland and the rest of the UK – not least by explaining why the euro had failed to work effectively. The inherent risks to sterling from a spendthrift Scottish Parliament would require scrutiny and correction of its spending by the Bank of England – and implicitly of Scottish taxes and borrowing.
Carney’s Edinburgh speech was a time bomb, and it was not long before it was detonated by chancellor George Osborne when he too visited Edinburgh and said that the terms outlined by the governor would be too much of a gamble for the rest of the UK to sign up to. The nationalist dream of more generous welfare benefits, lower taxes and higher public spending would create risks to UK taxpayers.
No UK government of any colour could agree to underwrite Scotland if it chose to become independent, the chancellor warned, and Ed Balls and Alastair Darling backed him up. For the Bank of England to support failed Scottish-based banks while Scotland remained in the UK was to be expected, but having to bail out a failed independent Scottish economy could not be countenanced and would provoke public outrage.
From this point on, Alex Salmond was never able to answer the currency question convincingly. He had no Plan B of what an independent Scotland would do without the pound – leading many banks to state that they would have to move out of Scotland so they would have the protection of the Bank of England as their guarantor of last resort. The Nationalists, of course, lost the referendum by a much wider margin than many expected.
So, with such a decisive intervention by Carney last year, the anticipation ahead of his speech in Oxford was tangible. Would he, could he, sink the Leave campaign before the referendum really got going?
The short answer is no, but surprisingly the deeper answer is that he gave more comfort to the Leave campaign than to those that support a continuation of Britain’s EU membership. Not only did he fail to deliver anything like a killer blow, but Carney also highlighted the central risk to the UK of remaining a member of the EU.
Yes, the governor pointed to the importance of access to European markets and the benefits from freedom of movement of labour and capital due to being in the EU. But he did not challenge the fact that these benefits are not unique to EU members. Other countries have access to EU markets through trade agreements or under World Trade Organization rules, and are free to set their own liberal policies for labour and capital controls.
The governor also didn’t contest some of the costs of EU membership. Whatever benefits the UK has gained from being in the EU have been accompanied by 65 per cent of our laws coming from Brussels, a net annual contribution to the EU budget of £11bn, and a negative effect of at least 4 per cent on UK GDP (Gordon Brown’s own figures).
More importantly for EU-sceptics, Carney flagged up the real dangers that are over the horizon, especially those linked to the Eurozone’s need to integrate further to protect the euro – and the threat to UK financial services from future regulation. Thirty years on after its launch, the EU’s “single market” for finance is still incomplete, and resolution looks further and further off.
If we are to take anything from Carney’s speech, it should be that the status quo is not an option, the EU must and will change, but the danger is it will change to something worse than we have now.
The result is that, while Carney’s speech was full of detail that few would dispute, because he did not provide a silver bullet for Osborne to shoot the Leave campaign down, it is destined to be forgotten.