Are Central Banks independent? Central Banks, Covid 19 and the era of President Trump and the German Constitutional Court

Yesterday, I delivered a talk  about the independence of central banks. I am reproducing the slides from my lecture below:

Four assertions to test

  • Central Banks are not independent, and never have been. They are the agents of the state or regional grouping they serve
  • Euro area government bonds are not sovereign bonds as the governments which issue them cannot create money to repay them
  • The Karlsruhe judgement underlines the lack of a transfer union in the Euro area to ensure smooth running of the currency and banking system
  • National Central Banks are now working closely with national governments to try to offset the huge economic damage done by the anti virus lock down and social distancing policies


  • Central Banks are usually established by elected assemblies on the advice of governments. Their functions, objectives and constitutions can be changed any time the political sovereign wishes
  • In Europe the doctrine of CB independence was strongly promoted as part of the creation of the Euro. It derived from the German CB set up after the war to create a low inflation stable currency the DM
  • The UK also changed from a CB that worked with the Treasury to a narrow idea of independence based around the decisions on interest rates. The Labour government also gave the powers of the CB over the banking system away to a new Regulator


  • The Fed always had a twin objective of low inflation and decent growth or employment, and always accepted it had to be in sympathy with government policy
  • The Peoples Bank of China makes a virtue out of working within the economic policy framework set out by the President of China

How independent was the Bundesbank?

  • The German Central Bank enjoyed a long run making its own decisions about interest rates and general levels of money and credit. It was able to do so because it was successful in its remit and had no serious political opposition to what it was doing
  • It proved to be anything but independent when East and West Germany merged. The Bank’s advice on delayed timing and on the rate of exchange for the merger of the Ostmark and DM was ignored. The political imperative of union took priority
  • The final irony of the so called independent Bank was when the German government decided to abolish the successful DM currency that the Central Bank was there to uphold and support
  • The Bundesbank accepted most of the important monetary powers it possessed being transferred to the ECB

How independent was the Bank of England, 1997-2019?

  • The Bank had to accept the loss of powers, including the power to regulate the commercial banks, and the power to issue government debt, in the legislation passed to create so called independence
  • The Bank then had to accept a change of inflation target when it suited the Labour government to flip to the softer target of CPI from RPI
  • The MPC agreed to an extraordinary meeting during the banking crash to lower rates as part of an international agreement brokered by the Chancellor
  • The Bank accepted joint control with the Treasury over Quantitative easing
  • The Bank then agreed to a change of powers from the Coalition government, who wished to give it back some powers over commercial banks

The battles between the Fed and the President 2016-20

  • The Fed decided on a policy of raising interest rates which the President opposed in public. He favoured zero or negative rates like the EU with more QE
  • In 2019 the Fed had to admit they were wrong and changed course to rate cutting, given the sluggish performance of the economy compared to forecasts and aspirations
  • In 2020 the Fed altered their opposition to near zero interest rates and proposed more QE as the virus effects gave them good reason to do so

Sovereign bonds are treated differently in markets, usually commanding lower rates and higher prices than corporate bonds, for two main reasons:

  1. The state that issues them can demand tax payments on threat of imprisonment to service and repay its debts
  2. The state can require the Central Bank to create extra domestic currency to repay the debts if necessary. German, Italian French and Spanish government bonds no longer enjoy this latter characteristic. The ECB and the EU authorities determine money creation in the Eurozone

The ECB offers mixed messages on Euro government bonds

  • Mrs Lagarde famously said the spreads or differential interest rates between say Italian and German state bonds was not a matter for the ECB to manage
  • The sharp adverse reaction by markets led to the ECB announcing Euro 750 bn  more QE, and spending some of it on trying to get the prices of Italian state debt up
  • In practice the ECB partially manages the spreads, but allows Italian, Greek, Spanish and other weaker country debts to offer higher yields than German
  • Intervention has been controlled by the so called capital key

The Karlsruhe judgement goes to the heart of whether the ECB should make it easier and cheaper for Italy and others to borrow, drawing on the strength of other member states finances:

  • It says of QE “The more its total volume increases, the greater the risk that the Eurosystem becomes dependent on member states policies as it can no longer simply terminate and undo the programme without jeopardising the stability of the monetary union”
  • The Judgement condemns QE saying the ECB “completely disregards the economic policy effects of the programme”

The constitutional battle for control of the ECB

  • The German court asserts that the member states are “the masters of the Treaties” that embody the laws and constitution of the Union
  • It dismisses the judgement of the ECJ, the EU’s Supreme court, as “a view”
  • It asserts that the ECJ’s upholding of ECB monetary policy is “simply untenable”
  • The Court however seems to give the final power to the German state which may well wish to confirm ECB power over QE

A new era of collaboration between Central banks and governments

  • The advent of anti Covid policies closing down great swathes of the world economy and requiring new business models when lock down is relaxed has led to joint Bank and government action
  • In the USA, the UK, Japan and elsewhere  the government encourages the Bank to lend and create money on a huge scale, and the Bank encourages the government to spend and borrow on a huge scale
  • Both have done so with the approval of each other
  • In the Euro area the Bank has expanded QE substantially, but the lack of a clear single sovereign for the EU has limited the fiscal response at EU level and caused more debates about pooling of risks and EU borrowing levels
  • Meanwhile member states have expanded their budget deficits greatly without EU demands to limit them to the 3% of the Treaties

The future

  • How will the new era of collaboration work out?
  • Can the pretence of independence be re created and should it be?
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  1. Mark B
    Posted June 9, 2020 at 5:20 am | Permalink

    ? ? ? ? ?

    We have covered this.

    • SM
      Posted June 9, 2020 at 6:05 am | Permalink

      Well gee whizz, Mark, let’s forget all those who may be coming new to this blog, or who have not read – for whatever reason – what our host may have written on the subject before, or even….dare I say it….that as a very busy MP, John may have justifiably considered his lecture a reasonable item to post instead of writing a completely new essay?

      Also, I’m not sure whether I find it more annoying or amusing that it’s generally the male posters on this site who believe they have a heaven-sent right to have their every comment (and in some cases multitudinous comments) instantly moderated and displayed.

      • miami.mode
        Posted June 9, 2020 at 12:42 pm | Permalink

        Best comment I have ever read on this site, SM.

    • Hope
      Posted June 9, 2020 at 8:29 am | Permalink

      JR, is right to highlight as it will be important for years to come as His Tory Govt. Deliberately and recklessly destroyed the economy without good reason. His govt will seek to hide behind and blame the inanimate Chines virus. The Tory govt will blame and hide behind it followed the science rot. Which we all now know to be untrue.

      A bit like the fake independent IPSA that governs MP pay and employment. Cameron threatened to change/close it after it did not stop upsetting MPs after the expense scandal, which he, Clegg and Miliband promised radical change. Before this Elizabeth Fylkin, the last person to truly challenge inappropriate conduct of MPs, was got rid of because she challenged MPs and did her job!

      Now we have the fake claims about independent police when it is widely known the govt. through HMIC directs changes in policing.

      • Mark B
        Posted June 9, 2020 at 11:28 am | Permalink


        I do not think the Tories did it deliberately. But we do seem to suffer with a political party that does not like strong and effective leaders, with solid core belief’s. Better some spiv, windbag or just old bag than someone who might actualy be any good.

        • Hope
          Posted June 9, 2020 at 5:06 pm | Permalink

          Mark, most definitely deliberately. The Tory party chose to shut down business and chose to slowly open up. This was not a Chinese virus acting on its own accord it was the Tory Govt.

          The same Tory govt. that chose to have a spend and waste budget in March a week before shutting down the economy! Increasing minimum wage before furloughing them! Most rational people suggested to wait and act in a cogent manner. Now we are told by Johnson, no austerity and no tax rises. JR, please explain where the money is coming from?

          • Hope
            Posted June 9, 2020 at 5:10 pm | Permalink

            Mark, even JR advocated more debt in March, in fairness to him he advocated early opening up from lock down of business.

            The quarantine farce is beyond belief. Tory Govt made all the wrong decisions at the wrong time based on wrong science and fictitious graphs. Johnson even repeated the rot about saving the U.K. from 500,000 deaths! What planet is he on? The same woke university that now wants to change its name!

          • NickC
            Posted June 9, 2020 at 8:25 pm | Permalink

            And the furlough “pay” should have been equivalent to the old age pension. Then we’d see the haters of the old squawking.

      • Lynn Atkinson
        Posted June 9, 2020 at 11:40 am | Permalink

        Sadly it’s not Sir John’s Government, else we would not be in this pickle.

        • glen cullen
          Posted June 9, 2020 at 4:59 pm | Permalink

          concur with your comments

          • Hope
            Posted June 9, 2020 at 5:13 pm | Permalink

            Lynne, Oh it his govt because you will find MPs talk in “we” when crowing, or “on this side of the house” tribal remark.

            I do accept the Tory govt is much poorer without JR in the cabinet. But he and his likes are a minority of conservatives in a blue New Labour Party.

      • Ian Wragg
        Posted June 9, 2020 at 1:18 pm | Permalink

        Funny how a Tory government is responsible for trashing the economy of most of the world.
        We are always being told by the remainiacs that we are a small insignificant country but apparently we are the source of all evil

        I would like to meet all those oh so righteous taking the knee people and have them all shipped off to their non racist country of choice.
        Funny how the whole world and its dog are trying to cross the channel.

      • Mike Wilson
        Posted June 9, 2020 at 4:42 pm | Permalink

        Which we all now know to be untrue.

        How so?

        And, hindsight is a wonderful thing. No-one knew when this first kicked off if it was going to kill a few thousand, a few million or half the population. What could the government do? As it is, notwithstanding the awful uselessness re. PPE etc. – on the whole in terms of the lockdown, releasing the lockdown etc. I think they have it about right.

        • Lynn Atkinson
          Posted June 9, 2020 at 7:21 pm | Permalink

          A look at Ferguson’s previous predictions against reality would have resulted in a more accurate idea. Also it should have been established early (ie first thing in view of his disastrous record) that he was not prepared to have his model peer reviewed (Still refuses to make his code available) so he rejected ‘the science’!

        • NickC
          Posted June 9, 2020 at 8:28 pm | Permalink

          Mike W, It’s not up to government ministers to order PPE. The lack of PPE is down to the useless NHS management.

          • Martin in Cardiff
            Posted June 10, 2020 at 4:11 pm | Permalink

            It’s up to them, to appoint people who could actually organise an ale session in a brewery though, and to write and to uphold the relevant job descriptions.

            Who chooses top NHS management?

    • czerwonadupa
      Posted June 9, 2020 at 1:02 pm | Permalink

      As a new comer to Sir John’s site I find it more enlightening than I do the organisation we are all forced to subsidise. And newspapers have for a long time ceased to be news papers but papers pushing their agendas

      • Mark B
        Posted June 10, 2020 at 4:51 am | Permalink

        Welcome to the site.


  2. English Gentleman
    Posted June 9, 2020 at 5:23 am | Permalink

    British diplomats should arrange an emergency meeting with their American counterparts.
    It concerns the word ‘era’

    They pronounce it at their best as I heard yesterday on CNBC by a journalist who appears to originate from New Jersy as he once mentioned plumbers being in short supply there ‘Ahra’
    They usually pronounce it “Error”. It is very off putting for normal people. It sticks out.
    As does Nu Yahrk. Where is it?
    The Americans must be instructed to speak English properly or quit it.

    • Peter van LEEUWEN
      Posted June 9, 2020 at 6:18 am | Permalink

      @English Gentleman
      “The Americans must be instructed to speak English properly or quit it.”
      Britain finally back in the driving seat, hurray! 🙂 🙂

      • Lynn Atkinson
        Posted June 9, 2020 at 11:41 am | Permalink

        Taking our cue from the French 😂😂

      • Nick
        Posted June 9, 2020 at 12:49 pm | Permalink

        PvL, I see you don’t get self-deprecation.

      • Ian Wragg
        Posted June 9, 2020 at 1:20 pm | Permalink

        I see Holland is against Baling out the southern EU states. Solidarity mate, solidarity.

    • margaret howard
      Posted June 9, 2020 at 7:11 am | Permalink

      And Englishmen must be instructed to understand the difference between ‘there’ and ‘their’ -:)

      • Nick
        Posted June 9, 2020 at 12:51 pm | Permalink

        And so must you!

      • miami.mode
        Posted June 9, 2020 at 12:56 pm | Permalink

        Cannot really see anything wrong with that posting, margaret, except how could you ever expect an English Gentleman to know how to spell an American state called New Jersey as the only jersey in England is that which is worn or a breed of dairy cattle?

      • Lifelogic
        Posted June 9, 2020 at 8:21 pm | Permalink

        Why not just spell them the same no confusion would arise anyway.

    • Lifelogic
      Posted June 9, 2020 at 2:40 pm | Permalink

      And indeed the French too who cannot even say their capital “Paris” properly they say Parrie or even “Reims” which they say ranse.

      If they cannot even get their own towns right what hope is there for them!

      • margaret howard
        Posted June 9, 2020 at 8:33 pm | Permalink


        So what do you make of say, Gloucestershire? Worcestershire?

    • Mike Wilson
      Posted June 9, 2020 at 4:44 pm | Permalink

      The Americans must be instructed to speak English properly or quit it.

      Oh dear. Sentence ended with a preposition. That is something up with which Mr. Churchill would not put.

      • Leslie Singleton
        Posted June 9, 2020 at 6:14 pm | Permalink

        Dear Mike–Do you think that “it” is a preposition? If so perhaps best if you keep quiet.

  3. Lifelogic
    Posted June 9, 2020 at 5:49 am | Permalink

    Indeed all sensible stuff.

    Not only central banks we have government effectively forcing one size fits all 40% rip off personal overdraft rates onto people through the FCA. So even private banks are under to control of governments who are doing huge damage to the system. Making them in effect an arm of social security.

    I have a loan with HSBC on a mixed commercial residential property. 10 years back they were very happy to lend on it at base +1% now they will not renew at base plus 6% or indeed at any rate (due to red tape and their new lending policies) forced onto them by the misguided red tape. The loan is only about 30% of the value of the property so there is virtually zero risk for them.

    • Mike Wilson
      Posted June 9, 2020 at 4:46 pm | Permalink

      I have a loan with HSBC on a mixed commercial residential property. 10 years back they were very happy to lend on it at base +1% now they will not renew at base plus 6% or indeed at any rate

      Hold tight. When rates go negative you won’t need a loan. They’ll pay you a bit of interest each month.

      • Lifelogic
        Posted June 9, 2020 at 5:31 pm | Permalink

        Alas it is up for renewal!

  4. oldtimer
    Posted June 9, 2020 at 5:49 am | Permalink

    More likely Google Translate will add the interpretations of these diverging dialects to its repertoire.

  5. Jess
    Posted June 9, 2020 at 5:56 am | Permalink

    Central banks are part of a centrally planned economy. They facilitate the financialisation of the economy to extract wealth from the productive and allow massive borrowing and therefore constant warfare. They are an essential part of the crony capitalist world we currently live in. In short they have no place in a free market or in a just world.

    • Lynn Atkinson
      Posted June 9, 2020 at 11:43 am | Permalink

      …crony corporatist world ….
      let’s get back to Capitalism where most people own some capital and are therefore ‘stake holders’.

      • glen cullen
        Posted June 9, 2020 at 5:06 pm | Permalink

        Sorry Lynn, the keys to capitalism have been given to the Mob, Media and Militant Left of the Party

        ……for the foreseeable future

  6. Peter van LEEUWEN
    Posted June 9, 2020 at 6:25 am | Permalink

    “The German court asserts that the member states are “the masters of the Treaties” that embody the laws and constitution of the Union”.

    The member states are “collectively” the masters of the treaties.

    • a-tracy
      Posted June 9, 2020 at 12:00 pm | Permalink

      How many votes does each member state have? Is it based on their contribution, their population or something else?

      • Peter van LEEUWEN
        Posted June 9, 2020 at 6:53 pm | Permalink

        @a-tracy: It is based on unanimity: Every government has to agree on any change in the treaties and every parliament has to ratify any change in the treaties.
        As an example: The UK government decided to sign the Lisbon Treaty and it was also duly ratified by both houses of your parliament.

        Disagreement with the Lisbon Treaty and others were therefore more to do with your national system of politics, showing a country failing to come together, and, as far as I can observe, still very disunited, even though there now is political agreement on Brexit.

        • NickC
          Posted June 10, 2020 at 11:15 am | Permalink

          Well, that’s the theory, PvL. In practice the sub-states give way on what they actually want because the alternative – leaving – is so complicated.

    • Nick
      Posted June 9, 2020 at 12:53 pm | Permalink

      PvL, Except the German constitutional court was specific about German rights under German law.

      • Peter van LEEUWEN
        Posted June 9, 2020 at 7:00 pm | Permalink

        @Nick: what I observe and read is that this issue will be resolved within the next few months.
        It may actually have helped the German government to decide to jointly with Franc propose their 500bn package and taking some responsibility for (still exceptional) mutualisation of debt.

    • Ian Wragg
      Posted June 9, 2020 at 1:21 pm | Permalink

      And Brussels ignored the ruling. Very democratic.

      • Peter van LEEUWEN
        Posted June 9, 2020 at 7:04 pm | Permalink

        @Ian Wragg: Brussels didn’t ignore it, but Brussels doesn’t answer to a national court but to the European court. And also “Brussels” was not even involved, this was about the ECB QE.

        • NickC
          Posted June 10, 2020 at 11:19 am | Permalink

          It’s the other way round. The EU court answers to Brussels.

    • Mike Wilson
      Posted June 9, 2020 at 4:39 pm | Permalink

      The member states are “collectively” the masters of the treaties.,

      A completely meaningless sentence. It’s like saying everyone in this country collectively voted for a Tory government. It’s nonsense.

      Reply. Not so. There are 27 member states. If they all agreed they can amend or overturn the Treaty tomorrow.

      • Peter van LEEUWEN
        Posted June 9, 2020 at 7:07 pm | Permalink

        @Mike Wilson: And ONLY when they all agree can they amend or overturn the Treaty tomorrow. The process towards unanimity is always complicated and slow.

        • NickC
          Posted June 10, 2020 at 11:20 am | Permalink

          Agreement is baked into the structure, because the only alternative is leaving.

  7. Martin in Cardiff
    Posted June 9, 2020 at 6:44 am | Permalink

    Well, whatever the answers to those many questions, it remains, that a euro will cost you around ninety pence now, whereas about five years ago it was only around seventy.

    • Lynn Atkinson
      Posted June 9, 2020 at 11:44 am | Permalink

      Buy some – the Euro will cost you more than that I promise you.

    • Nick
      Posted June 9, 2020 at 12:55 pm | Permalink

      Martin, And when I was exporting to the EZ the Euro/GBP rate was 88p. Your point is?

    • czerwonadupa
      Posted June 9, 2020 at 1:03 pm | Permalink

      Freedom is Priceless.

      • Andy
        Posted June 9, 2020 at 7:10 pm | Permalink

        We were already free – and are now less free because I our rights have been taken away by the Tory pensioners. I had the right to live, work, study, retire to more than 30 countries bureaucracy free. But thanks to the pensioners I will soon have the right to live, work, study and retire bureaucracy free to just one other country. This you call freedom.

        It also turns out Brexit is far from priceless. In fact our children will be paying your Brexit bill until the mid 2060s. And that’s before we factor in the significant loss of growth your Brexit will cause for years to come.

        • Richard1
          Posted June 10, 2020 at 6:56 am | Permalink

          Nonsense there are loads of people living working and retiring in different countries without political unions between them. 1m UK citizens in Australia eg.

    • Sea Warrior
      Posted June 9, 2020 at 2:42 pm | Permalink

      Bad for my ski trips but good for our exporters.

    • Mike Wilson
      Posted June 9, 2020 at 4:48 pm | Permalink

      Well, whatever the answers to those many questions, it remains, that a euro will cost you around ninety pence now, whereas about five years ago it was only around seventy.

      Thank heavens I have no need to buy Euros. And if something made in Euroland is too expensive for me, I can always buy something made ….. HERE! Long live Toyota!

      • Martin in Cardiff
        Posted June 10, 2020 at 10:57 am | Permalink

        It’s not just euros.

        You’ll find Sterling weak against many currencies – notably the US dollar.

  8. Adam
    Posted June 9, 2020 at 6:46 am | Permalink

    Commerce occurs only when a consumer and supplier each accept what the other offers in exchange.

    They decide equality and control value. Banks and others may provide a service of value fragments to assist balance, yet without need they are worthless.

  9. NigelE
    Posted June 9, 2020 at 6:50 am | Permalink

    Are those really the slides you used, Sir John? Far too many words – but then you’re a politician! 🙂

  10. Javelin
    Posted June 9, 2020 at 7:09 am | Permalink

    A) Club Med dependent on ECB bond issuance
    B) ECB dependent on Bundesbank.
    C) Bundesbank dependent on German Chancellor

    Therefore Club Med dependent on German Chancellor

    • bill brown
      Posted June 9, 2020 at 12:18 pm | Permalink


      what is club Med?

      • Lynn Atkinson
        Posted June 9, 2020 at 7:32 pm | Permalink

        Southern European countries, ie those on the Mediterranean.

  11. Non-amnesiac
    Posted June 9, 2020 at 7:14 am | Permalink

    Mr Carney is on record, many times, as saying the BoE is independent of Government.

    • Martin in Cardiff
      Posted June 9, 2020 at 10:17 am | Permalink

      Well, the Government have effectively got rid of the Fixed Term Parliaments Act.

      All they need do now is to take control of interest rates, in order to offer temporary sweeteners when the situation suits, and it will be back to the Good Old Days Of Fixed General Elections.

      John postures as if to suggest that this would amount to No Real Change.

      I think that he misleads.

      • steve
        Posted June 9, 2020 at 7:20 pm | Permalink


        “Good Old Days Of Fixed General Elections.”

        What a good idea ! especially since Labour remainiacs can’t stand losing fair and square.

        Oh wait a minute……postal votes, Peterborough etc. Hmm.

      • NickC
        Posted June 9, 2020 at 8:39 pm | Permalink

        Martin, What’s voting to you? Ohh . . . you’re just selective about the votes you accept.

    • Lynn Atkinson
      Posted June 9, 2020 at 11:45 am | Permalink

      Sir John’s point made!

    • Ian Wragg
      Posted June 9, 2020 at 1:23 pm | Permalink

      That’s the same sort of independence I have but don’t tell the wife.

    • Leslie Singleton
      Posted June 9, 2020 at 6:21 pm | Permalink

      Dear Non–B of E has operational independence, which seems simple enough to me to understand–Hard to believe that you think it has total independence, presumably, as you see it, living in a world of its own.

  12. Bryan Harris
    Posted June 9, 2020 at 7:15 am | Permalink

    I’m not convinced that total banking independence is the right way to go. With rational governments there is no benefit… (Ah yes, rational governments may not really exist of course…) They are often run by the unaccountable who prefer to dismiss what the public want – Just look at how the BBC behaves.

    We already have far too many institutions that have been farmed out with too much power over our lives, with far too little oversight.

    I want to see direct responsibility of our central bank to Parliament – as well as every other quangos, if quangos continue to exist. Governments are far too clever at ignoring their responsibilities by setting up some ‘authority’ to run a function of state that they should be fully responsible for.
    Let’s have a proper chain of command and responsibility, with Parliament at the top, not sidelined.

  13. Andy
    Posted June 9, 2020 at 7:40 am | Permalink

    Facts 4 EU – the website about the EU which is largely devoid of any facts – is now raging about GI’s. No, not the Demi Moore film but Geographical Indications. These are important for the EU because they protect products. For example you can only make Champagne in Champagne. Feta is only Feta if it comes from Greece. Parma Ham is from, you guessed it, Ham. (Just kidding).

    Anyway the UK used to benefit from these GIs too. Cornish pasties, Scotch whisky, Melton Mowbray pork pies. They are very valuable. £75bn a year valuable across the EU.

    Except we have agreed to protect the EU’s GIs and they have given no such commitment to protect ours. They can now, literally, copy Scotch whisky and call it Scotch whisky and we can’t do anything about it.

    Facts 4 EU is angry about this. It reports that unelected bureaucrat David Frost has been complaining that the withdrawal agreement includes guarantees from the UK that EU GIs will be protected – but no guarantees that the EU will protect our GIs. Mr Frost and Facgs 4 EU think this is outrageous. They blame the EU and Olly Robbins.

    I agree it is outrageous. But it is entirely the fault of the Tory Brexiteers. Many of whom didn’t read the withdrawal agreement before they voted for it, even fewer of whom understood what they were voting for. A reminder – virtually every Tory MP voted for this legally binding international treaty and the vast majority of non Tory MPs voted against it.

    Poor Mr Frost and Fact 4 EU. Getting shafted by Brexiteers who have told porkies pies. Just not Melton Mowbray ones.

    • Richard1
      Posted June 9, 2020 at 5:53 pm | Permalink

      Wise of you to avoid the actual topic on which Sir John has posted today – the doomsday machine of the euro, which you wanted us all to join. you haven’t got much to say on that have you?

      Very few UK products are protected by GIs its a very minor thing for the UK. But you are right that it is absurd Robbins & May put this into the draft in the first place. Boris had to get some sort of deal through the very unrepresentative parliament we had in the autumn and the main thing was to get rid of the Irish backstop, a device to keep the UK permanently in hock to the EU.

      Of course the main item by far in the WA was the EU’s agreement to agree a best in class FTA in good faith, which so far they are not doing. if they insist on a term like this, minor as it is, it is another reason to walk away and come back in a year or two when everyone has calmed down (except for you….)

    • Anonymous
      Posted June 9, 2020 at 6:14 pm | Permalink

      But they can’t put Made in Great Britain on the packet.

    • Lynn Atkinson
      Posted June 9, 2020 at 7:35 pm | Permalink

      Yes Theresa May agreed to this one sided disgrace. Imagine if Cheddar got a penny for every ton consumed?
      Thankfully this idiocy with the rest will be overturned.

    • NickC
      Posted June 9, 2020 at 8:42 pm | Permalink

      Andy, What a tortuous and tedious comment just to cover up the fact that the EU empire has been nasty and vindictive. Again.

    • Bryan Harris
      Posted June 10, 2020 at 6:43 am | Permalink

      GI’s – Indeed – a most destructive element – It all but destroyed the economy of Greece which had to see many industries laid waste because such goods/ services were already made elsewhere in the EU. It has never been about fairness, but about propping up the status quo.

  14. M Brandreth- Jones
    Posted June 9, 2020 at 7:44 am | Permalink

    At a wishy washy level ,No there is no such thing as independence as far as monetary matters are concerned/. I cannot imagine stronger countries wanting to willingly share their greater wealth with poorer countries without some impediment to their own regrouping and progress, yet in the future there will have to be a certain amount of collaboration until one becomes more far more powerful than another and wants to break out.
    Germany as the stronger in the EU seem to always get their own way and you yourself do not state whether you think Germanys’ take that nation states are masters of their treaties in opposition to the European view is correct and whether this is a sustainable angle for democratic union.

    • Lynn Atkinson
      Posted June 9, 2020 at 7:36 pm | Permalink

      Britain’s shares its wealth with the entire Commonwealth and EU.

  15. Mr Ian Kaye
    Posted June 9, 2020 at 7:53 am | Permalink

    I would be interested to have your views on Bank of England abandoning forward guidance how significant was this this and for what reason or reasons was this done was it for example because the Bank of England came to the conclusion that there was very little prospect if any of the short-term rate of interest rising anytime soon .

  16. M Brandreth- Jones
    Posted June 9, 2020 at 8:27 am | Permalink

    Off topic…… I have tried to contact the passport office this morning and the automated system is not picking up word recognition . My passport runs out in 2024 . Will I need a new one for 2021. The passport type is EU,UK and Northern Ireland. Any help?

    • hefner
      Posted June 9, 2020 at 2:24 pm | Permalink

      I cannot understand your problem. Your passport (issued by the British authorities not the EU) is valid till some time in 2024, why would you want to replace it before the date of expiration? Are you so keen on giving £75.50 (34 pages) or £85.50 (50 pages) to HMRC for a new passport three years and a half earlier than needed?

      • M Brandreth- Jones
        Posted June 9, 2020 at 6:04 pm | Permalink

        It is an enquiry re the changing status of passports as written on the website. Why does everyone insist there is an argument or a problem, For goodness sake If you can’t answer a question from someone who doesn’t understand the new system then don’t bother!

    • Mike Wilson
      Posted June 9, 2020 at 4:49 pm | Permalink

      Are you in a position to get yourself an Irish passport?

  17. IanT
    Posted June 9, 2020 at 8:29 am | Permalink

    I was pleased to see mention of CPI and RPI.

    Inflation is of course a purely imaginary concept. After all – we moved smoothly from RPI to CPI and no one noticed that we quickly lost about 1% in “inflation” – CPI typically being that much under RPI – and neither of course having too much connection with real peoples lives.

    If you are paying rent then that is probably a very large part of your outgoings – so large rent increases would be painful – but not unfortunately tracked in anyway by CPI….so rather meaningless

    • Nick
      Posted June 9, 2020 at 1:07 pm | Permalink

      IanT, You are confusing the measuring tool (RPI, CPI, etc) with what is being measured (inflation). Of course inflation is different for each family, depending on what is bought. That doesn’t make a general measure invalid.

  18. acorn
    Posted June 9, 2020 at 8:43 am | Permalink

    There is no such thing as an independent Central Bank in a Sovereign Fiat Currency Economy and hasn’t been since the UK came off the Gold Standard in 1931. Central Bank “monetary policy” is a slow and inadequate tool and should be scrapped, it is a relic of Gold Standard days. Nothing will change until there is an understanding of the fundamental difference between a fiat currency ISSUER and a fiat currency USER.

    Worth a read as are the rest of the fact sheets on that site.

    • Martin in Cardiff
      Posted June 9, 2020 at 10:25 am | Permalink

      No, but it can be given a constitution, and be independent within its remit.

      That is what power-obsessed governments want to claw back for themselves, to use for their own purposes, and not for the national good.

      • acorn
        Posted June 9, 2020 at 5:23 pm | Permalink

        Martin, I take it macroeconomics is not your strong point. Your comment just destroyed your cred’.

        • Martin in Cardiff
          Posted June 10, 2020 at 7:03 am | Permalink

          You appear not to have understood it.

      • steve
        Posted June 9, 2020 at 7:11 pm | Permalink

        and that coming from someone who preaches politics of envy.

      • Lynn Atkinson
        Posted June 9, 2020 at 7:42 pm | Permalink

        ‘Independent within its remit’ is not independent. You never understood Sovereignty did you?

        • Martin in Cardiff
          Posted June 10, 2020 at 7:05 am | Permalink

          OK, do you think that a CB should be capable of buying assets such as land then, Lynn, for instance?

    • Nick
      Posted June 9, 2020 at 1:10 pm | Permalink

      Acorn, “fact sheets” hahahaha! The only reason that MMT believers have made any headway is you ignore the massive amount of deflation injected into the global economy by China.

      • acorn
        Posted June 9, 2020 at 5:12 pm | Permalink

        Perhaps you could explain, in detail, how China injected massive amounts of deflation, without the active cooperation of the countries that were importing their stuff, in preference to their own domestically produced stuff?

        • NickC
          Posted June 10, 2020 at 11:29 am | Permalink

          The Chinese stuff is cheaper. That’s the point.

  19. hefner
    Posted June 9, 2020 at 9:08 am | Permalink

    Is that the plan of a future book on Central Banks?

  20. Ian @Barkham
    Posted June 9, 2020 at 9:14 am | Permalink

    Isn’t the flaw in the system that it is a normal human trait to try and hang on to a position/power achieved and at time that would also mean bending to those that hire and fire.

    I don’t know, but it would half suggest to me that just maybe their should be some sort of election to the position, for that matter any position were power over peoples lives are in the recipients hands.

  21. John E
    Posted June 9, 2020 at 9:22 am | Permalink

    It seems that the commercial banks in the UK are also state controlled and prevented from making or sharing profits. The various fines and punishments following the 2008 crash have milked them dry. Zero interest rates leave them no spread. Enhanced liquidity requirements limit their ability to lend and thus create money.
    The central banks are filling a void that over regulation has created.
    With the rise of fintechs and alternative payment systems, what are the likes of Lloyds or RBS for? Why does not the Bank of England take full control of money creation as Mervyn King has advocated?

  22. Martian
    Posted June 9, 2020 at 10:46 am | Permalink

    “IBM exits facial recognition”

    Your first guess why is probably right

    That’s it. I’ve leaving this planet. You’re finished!

  23. William Long
    Posted June 9, 2020 at 10:51 am | Permalink

    It is hard to see that the Bank of England was ever truly independent of the Government. Even when its shareholders were private citizens or corporations, it was bound to the Government by the fact that its original incorporation, by Royal Charter in 1694, was for the sole purpose of raising a loan to the Government to finance its war with France. Although like any othe Bank, it had private customers right until Nationalisation in 1946, its main business was arranging the finances of the State and it therefor grew to be at the beck and call of the Chancellor of the Exchequer of the day, and its governing body accepted this and indeed made a virtue of its function of providing a service to the State. With all its share capital owned by the Treasury, the ‘Independence’ conferred by Gordon Brown was no more than a cosmetic sham because its sole shareholder was always de facto in a position to tell it what to do: the Governor might scream and resign, but the Government would always be in a position to find a new one to do what it wanted. That is the position now and will remain so.

  24. Lindsay McDougall
    Posted June 9, 2020 at 11:35 am | Permalink

    Two points:

    The Karlsruhe court can make any judgements it likes. It cannot control the ECB; only the Council of Ministers can do that (in practice if not in theory).

    The UK needs to get back to inflation targeting as a means of controlling monetary policy. Whether central government or the Central Bank does it is unimportant. What matters is what items are included in the inflation index:
    – VAT and excise duty should be EXCLUDED; they are government imposts, not part of the underlying price level;
    – House prices and other asset prices should be included; the rich spend money too, not just Joe Public;
    – Interest rates are an output, not an input, so they should not be in the index.

    A monetary policy based on targeting such an index would be normal but we may have to wait a year until the economic downturn from the pandemic is over.

  25. Caterpillar
    Posted June 9, 2020 at 12:22 pm | Permalink

    Nice to see presentation slides with actual words and content rather than the minimal word, pie chart-whizz-bangs of the contemporary style.

    I agree with Jess’s point (above) that central banks are part of the problems of financialization of the economy. Although the understanding of the monetary circuit was limited in the early twentieth century I think the social credit theorists argument about the purpose of an economy and the hierarchy of finance compared with democracy and actual production with resources was well founded. I also think arguments on where credit creation should occur in a democracy need to be revisited (in light of social credit theorists, MMTers, the success flowing from German regional banks etc.)

    On Karlsruhe and the ECB, and MMe Lagarde, I think there needs to be much more transparency. The shift to pandemic asset purchasing (not explicitly judged by Karlsruhe) from perhaps an admission that the economic effects of the earlier asset purchases needed much more transparency does seem to have been conveniently taken.

  26. JoolsB
    Posted June 9, 2020 at 12:44 pm | Permalink

    John, was the billions of taxpayers’ money used to bail out RBS more than 10 years ago a loan or a gift? If a loan, when will it be paid back and why in the meantime are their employees and retirees (on their gold plated taxpayer funded pensions) still enjoying dividends on the shares they were allowed to keep?

    Reply The taxpayer bought shares

  27. Lynn Atkinson
    Posted June 9, 2020 at 12:56 pm | Permalink

    More mistakes from Boris. Agreeing that the U.K. is a ‘racist country’ – Mandela in Downing Street started it was not – having has. A chat with Thatcher.

    Also this:
    A kick in the teeth for landlords; Rosalind Beck, CapX

    If you walked into Tesco and demanded £200 of free food and drink, you’d be laughed out of the shop. But that is effectively what is being asked of private landlords with the government’s newly extended eviction ban. Not only will it mean landlords racking up unrecoverable debts, but it will hammer investor confidence in the entire sector.

    • Iago
      Posted June 9, 2020 at 6:30 pm | Permalink

      Johnson’s a posturing fool, betrayal is all he knows. Time for another Service of Thanksgiving in Westminster Abbey. That way the politicians will get a cushion to take a knee on whilst the rest of us will have to do so without.

    • steve
      Posted June 9, 2020 at 7:09 pm | Permalink


      “But that is effectively what is being asked of private landlords with the government’s newly extended eviction ban.”

      Not all Landlords have a problem with this, Lynn, though I agree in principle.

      I’m a Landlord and I have a Tennant who is classed as vulnerable. She has found times like these particularly challenging, and to be honest I don’t mind giving support where needed, even out of my own pocket. That said, my Tennant is a good person but I can see how nightmarish it would be if you had bad Tennants.

      I guess I am lucky.

    • rose
      Posted June 9, 2020 at 10:08 pm | Permalink

      The PM said he did not agree the UK is a racist country.

    • Mike Wilson
      Posted June 9, 2020 at 10:39 pm | Permalink

      Not only will it mean landlords racking up unrecoverable debts, but it will hammer investor confidence in the entire sector.

      The government is merely helping landlords to manifest their inner decency. No landlord wants to evict a non-paying tenant and put them on the street, bags and baggage. Do they? Of course not. Any decent landlord should look on the rent as part rent / part purchase. If the tenant rents for 25 years and pays off the landlord’s buy to let mortgage for them, surely the least the landlord could do is let them have the house. After all, the tenant has paid for it. Bless them.

      • Edward2
        Posted June 11, 2020 at 7:35 am | Permalink

        The average length of a tenancy is 3.9 years.
        So which renter gets to own the property after your 25 years is up?

  28. Mike Wilson
    Posted June 9, 2020 at 4:52 pm | Permalink

    Euro area government bonds are not sovereign bonds as the governments which issue them cannot create money to repay them

    This stuff always intrigues me. So a government can create bonds and sell them and then, when the day comes to repay the bondholder they can simply create the money out of thin air. Sounds like a con trick to me. Why do people buy bonds? Why do they fall for it?

    • zorro
      Posted June 9, 2020 at 6:30 pm | Permalink

      Because they are guaranteed payment by governments….


  29. Pat
    Posted June 9, 2020 at 6:32 pm | Permalink

    Dear Sir John,

    Off topic

    May I draw your attention once again to the plight of zoos and safari parks in the UK.

    Despite numerous requests to DEFRA for some indication of a date they can work towards for re-opening, none has been forthcoming.

    DEFRA has stated on ITV Granada news tonight that they have provided 14 million pounds of support funding for smaller zoos.
    This is insufficient, for example Knowsley Safari Park has monthly running costs of £400,000. It is a drive through only park and it is incomprehensible why it is not allowed to reopen immediately.

    Thank you for your kind attention once again on this urgent matter.

  30. ukretired123
    Posted June 9, 2020 at 8:36 pm | Permalink

    Ultimately trust in a currency is the responsibility of the government, it’s financial resources, it’s financial discipline and what the markets perceive these to be. The Central Bank can be given the aura of independence but it’s managers do not own it and only have limited tenure.

    The ECB relies upon 27 countries committed to honouring their annual budgeted increased contributions. The Euros history used to be a crisis every 6 months. The extra injection of 750Bn just announced and the loss of Britain’s contributions has finally brought matters to fairy-land economics. The debt mountains may be invisible but they are real for all countries.
    Countries like Germany and the frugal four are between a rock and a big drop – Damned if they go ahead with this or damned if they dont.
    We will find out soon enough just who actually controls the ECB.

  31. mancunius
    Posted June 9, 2020 at 8:45 pm | Permalink

    The German Constitutional Court has previously been very compliant so far with all the EU/ECB’s post-crash decisions that drove a coach and horses through the German Constitution. The Karlsruhe Court hadn’t either (unbelievably) found anything in the EU Lisbon Treaty contravening the Basic Law.
    All that will happen now is that the ECB or ECJ will make a statement, the German government will say ‘Fine, we’re satisfied,’ and that will be that. The plaintiff Peter Gauweiler’s view (Interview on Deutschlandfunk 05/05/20) is that the Bundestag will now have to OK any further ECB programmes in advance – but I can see Merkel smiling at that idea: she’ll merely get the Bundestag to rubber-stamp the decisions. There will be outraged objections from die Linke and even from individual CDU MPs, but the Bundestag parliamentary maths so far gives the government an easy ride.
    Gauweiler (rightly) says that those who take and spend taxpayers’ money should be elected by the nation’s citizens, but Brussels and the ECB have an entirely different view of ‘European democracy’ : one that involves silent and unelected decisions that bypass national courts.
    It took the BVG nearly a year to bring in a verdict on this case. Merkel knows she can smash the shop window, grab the jewellery and find a hiding place for it before the BVG ‘police’ even get their boots on.

  32. rose
    Posted June 9, 2020 at 10:07 pm | Permalink

    I should have liked to have been at the lecture.

  • About John Redwood

    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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