In recent years control of the City of London has effectively been ceded to the EU. Most financial and banking matters are now subject to EU regulation. Given the fact that London is a great global market this has its dangers. Many of us would prefer that the UK retained the power to make its own decisions about financial matters, and was able to set its own appropriate standards for the conduct of business as it used to do.

            We were told when they set up the Euro that London would be marginalised and would lose out to the French and German centres. Instead, London boomed, as it offered a fast, efficient and economic way of transacting Euro business, just as it offered good services for dollar and sterling business as well. Now we are threatened that if London and the UK do not accept all this EU regulation, London will be banned as a location for Euro business. International trade rules and self interest by operators on the continent suggest this threat, like the ones before it, does not ring true.

           The Euro area says it now needs much strongher and more centralised control over banks. So be it. If you are in a system with a single currency and central bank, there is a case for that.  It  is a matter which the Euro countries should decide. There is no need for us to give them advice or seek to influence what should be their decision.

          For us the decision is also simple. We do not wish to be part of the Euro. We do not share a central bank. We do not need to join their banking union. What the UK government needs to do is to seek powers back over our system as the price for letting them complete their more centralised arrangements. There is no reason why London should have to accept rules they need for their single currency area. If they accept that there is no reason why the UK government should withold consent to their progress towards a banking union. This is an opportunity for both sides to have a new and more sensible relationship on this set of issues.

        On Monday the Commons approved the government’s legislation to support its infrastructure programme.  The Opposition did not oppose the £50 billion authorised spend, nor the broad thrust of the programme.  They did not examine  most of the operational detail of the proposals.  Time was very limitied to do so. The Bill passed without a vote at third reading.

         The legislation was needed to allow the Treasury to put in place its “UK guarantees programme”. When this was announced on 18 July 2012 we were told that up to £40 billion would be available as guarantees  for private sector schemes in “transport,energy, communications and environmental sectors set out in the National Infrastructure Plan”  and  £10 billion for housing.  The idea was to allow the government to issue a guarantee or indemnity so the private sector could raise the necessary money from banks and markets to build the schemes. The government would charge a fee and aim to end up with no bill for the projects.

          However, when I read the draft legislation I discovered that this had changed between July and September. The bill widened both the scope of the projects that can be included, and greatly widened the types of financial intervention in projects which the government can make.   They added health, education, courts and prisons to the areas which can be financed in this way. They added   to gurantees and indemnities, loans, and “any other kind of financial assistance (actual or contigent).” This includes subsidy, grant, purchase of equity or simply paying the bills.  They dropped the planned divsion of the £50 bn between housing and the rest.

          The nature of the spending no longer has to be just capital works. It can include  “acquisition, design, construction, conversion, improvement, operation and repair” – in other words just about any kind of revenue as well as capital spending.

          I asked why the Bill had to go so much wider than the original  guarantees scheme. I asked if we could have some indication of how much might be spent under each heading. I asked if the Minister agreed that spending  money on coruts, prisons and public sector health and education were different in kind from offering a guraantee on private finance for a new power station or broadband link?  After all, these latter can be rewarding private sector projects, where end users pay for the service. The whole point of the NHS and state schools is they are free to users, so the provider cannot earn a return from customer revenues.

         I look forward to finding out what the government does intend. It was not clear on Monday.

Mrs May’s decision to opt the UK out of 133 criminal justice EU measures is most welcome. All sensible Eurosceptics should support it, and help her achieve it. Unfortunately Eurosceptics are in a minority in the Commons, though it helps a lot to have Conservative Ministers with us on a big issue like this.

In order to make a success of this policy we need to ensure it is voted through Parliament. We also need to protect against opting back into various measures. On Monday in Parliament Dominic Raab and I proposed that we should co-operate with other EU countries over extradition, police intelligence and the like, but do so through Memoranda of understanding as we do with non EU countries. That way we retain control over our side of the agreement, and can repeal or seek to amend it at a later date. These matters would not become justiciable in the European Court, as they will if we opt back in.

It would therefore be a good idea if Eurosceptics would lobby federalist MPs in the LIberal and Labour parties to vote for the opt out, and lobby to prefer co-operation with the rest of the EU by means other than opt in and submission to the Court.

The decision to hold an “open” competition for Governor of the Bank of England at first sight is a wise and modern move. No more magic circle, no more mysterious process and seceret short list. Anyone can apply, and the press can go to town on the merits and more likely the shortcomings of the various candidates as they leak out.

I normally favour open and transparent approaches to problems. As a democrat I normally favour the intense light of scrutiny. However, when making important appointments in the private sector in past jobs I have been grateful not to have to do it in the way the government is now searching for a new Governor. It often does make sense, when seeking a senior and able person, to use specialists to contact suitable people privately, and to conduct first round interviews in secret. If you want someone good they are very likely to hold a current role that is important to them. They will not automatically reach for an application form for your job, especially if their application becomes public.

The problem with the Bank job has been compounded by the clear “hands off” message in the advert to anyone other than a member of the charmed inner circle, and by the rough handling so far of anyone who hinted at their interest in the role in the press. Of course the winner has to expect an avalanche of appraisal, criticism and probing once appointed. Anyone who does not expect that and is not ready for it should not be applying. Serious candidates will naturally be reluctant to go through that before winning, if it damages their current role and reputation.

The government would be wise to choose their Governor in a different way. The country needs a unique individual. The person has to be able to give fearless and good advice in private to the government, and to be loyal to them, whoever is in office, in public. The winner has to use the independent powers that he or she does hold to good effect, in a way which helps government policy achieve legitimate goals of low inflation and faster growth. The person would be wise to know this is a very powerful position, and even wiser to understand that the holder of the office cannot hope to wield that power against the wishes of the elected government and Parliament for any length of time.

There have been major upheavals in the role and responsibility of the Bank on each change of government in 1997 and 2010. There has been constant public and Parliamentary dissatisfaction with the way monetary policy has been conducted and the way banks have been regulated since 2007, and for some of us from much longer ago than that. A new Governor needs supreme powers to heal the settlement, make the new system work, give due space to the Chancellor to shape economic policy, whilst keeping good hold of banks and money.

Unfortunately these superhumans have not so far been in charge of the Bank, and are unlikely to emerge from the current very flawed process. Maybe the government has got the job brief wrong, as well as choosing a bad way of finding the person. Maybe the job is too big. Maybe seeking both a great independent judge of the economy and a good courtier is expecting too much in the same person. This is a situation where a good search executive could help, and when greater clarity over how much to expect from the role would also be reassuring.

We read that the two front running candidates for the very powerful new post of Governor of the Bank of England are Paul Tucker, Deputy Governor, and Lord Turner, retiring Chairman of the FSA.

The advert for the post made clear that was what the establishment wanted. The ad said “The successful candidate will have experience of working in, or with a central bank or similar institution; or will have worked at the most senior level in a major bank or other financial institution”.

As there are no similar institutions to Central banks, the ad might as well have said “Insiders only need apply”. It immediately put off talented people who do not wish to see their current jobs disrupted by a media storm over their application, and who saw their chances would be slim at best. Those few who have run large UK based commercial banks have been largely ruled out by the hurricane of criticism that have surrounded them and their institutions in recent months. No-one would want to apply to be Governor if they had been at or near the top of a leading bank through the Libor crisis. They would know that their application would bring that all out again on a large scale.

The new post will be uniquely powerful. The new Governor will have all the powers over money, interest rates and markets that the outgoing Governor has enjoyed, and most of the powers over financial institutions that the outgoing Chairman of the FSA has enjoyed. The Governor will be both chairman of the Monetary Policy Committee, and of the Financial Policy Committee, bringing together the task of setting interest rates and the job of controlling banks and near banks.

I have nothing personally against the two front runners. They are both clever and hard working men. I do have a great sense of apprehension that the UK establishment wishes to recruit an establishment figure at this time when the Central Bank has presided over disaster after disaster, and when on its own admission the FSA failed to regulate well. The leading members of the elite club have been the people who have made all the wrong calls. Why should they now be trusted to find the antidote to their collective mistakes?

Most of the financial establishment have:

1. Supported the ruinous experiment of the ERM. The Bank was in the forefront of pushing that, when a few of us explained patiently it would end unsustainably in inflation or recession. It ended in both!
2. Argued for UK membership of the Euro. They now agree that was wrong. Thank heavens we on the outside won that one, with the help of the British people.
3. Argued in 2005-7 that there was a new world where banks could borrow on a collosal scale safely, where external credit could work its magic without fear of non payment and collapse. They ignored the opposition parties and commentators who said there was excessive debt in the system.
4. Decided in 2007 to starve the markets of money, bringing down Northern Rock in an entirely predictable way. They refused to heed the warnings of those of us who said they had lurched to money that was far too tight, which would in turn undermine the whole banking system.
5. Decided in 2008 to take most of RBS into public ownership, and decided to back a takeover of HBOS by Lloyds, driving that too into the arms of the state. They ignored those few of us who said the overextended banks needed to be propped with short term lending against security, and made to slim down and realise assets there and then, to sort them out. Depositors should have been protected, and shareholders and bondholders made to pay for the losses.
6. Embarked on a massive QE programme, whilst at the same time squeezing banks further with high cash and capital demands. They declined to listen to critics who pointed out that they would not finance a private sector led recovery if the banks could not lend on the extra money created. They ignored those of us who also urged them to control inflation better, to allow real incomes to recover sooner.

Lord Turner in his latest speech now acknowledges the errors he made over the Euro and over permitting too much expansion of bank balance sheets prior to 2007. All the insider candidates should be asked to tell us what they have learned from a stunning list of long term fundamental errors in their approach to UK banking and monetary policy. Never before has so much financial damage been done to so many by so few.

Mr Cameron said he could not vote to stay in the EU on current terms, but then he is not about to give us an In/Out referendum to let us vote No. Now Mr Gove has made it clear he would vote No to staying in on current terms, and has said the government should confront the EU with a choice – give us powers back or we leave.

It shows we are making some progress with the campaign to a) negotiate a new relationship and b) give us all a vote on whether that relationship is worth having. As always, though, we need actions soon to back up the words. Just getting justice powers back is a useful start, but we need to do so much more. If we had a government of Labour and Lib Dems the continued march to more EU powers would be remorseless, including accepting the Fiscal Treaty and not opting out of the criminal justice powers.

Amidst the din and fury of party contest at conferences, and between the personal stories, dramas and celebrity reporting of the leaders, the Governor of the Bank of England made an important speech.

He both claimed that the era of Bank “independence” had seen a much better record on inflation than we enjoyed in the 1970s and 1980s, and that having an inflaiton target may destabilise the economy in other ways. It was an elaborate and clever defence of what he has done, as he contemplates retirement and the verdict of history.

He was both saying it was a kind of success, and saying that because he had to concentrate on inflation it led to the banking crisis and the disruption of the eocnomy we witnessed in recent years. There are problems with both these arguments.

Let us take the success first of all. He points out that in the period 1992-2012 inflation averaged 2.1%, compared to 8.7% in the previous 20 years. He does not compare our record with international comparators. Had he done so , he would have seen that several leading countries experienced much higher inflation in the earlier period, and lower in the later period. Several countries tried new methods of controlling inflation which worked better after 1992, and deserve some credit. The UK system was also much better than the ERM which it replaced and which the Governor supported.

However, the international climate has quite an impact on the UK which is a very open economy. The period 1992-2007 was a period of great growth in cheap exports from emerging market economies which helped keep inflation low.It was also the period of the introduction of the internet, which has revolutionised productivity in many industries and lowered costs and prices. I agree that during the first part of his 20 year period UK policy was successful in keeping inflaiton under control. He admits that inflation, which was under reasonable control from 1992 to 2007, at 1.8%, leapt up to a rather high 3.2% a year in the last five years. This was a time when inflation amongst our western competitiors was much lower. That was not such a success.

If we come to the failure, the boom and bust and the banking crash, the Governor prays in excuse the need to curb inflation. He implies that if he had been set different goals and targets things might have been different. I agree with him that the prime responsibility lays with the then Chancellor.As Head of the tripartite system he held the main reponsibility, and had the power to change the aims and direct the Bank and the FSA. However, I never recall the Governor saying to the government that his target was dangerous or might cause a large boom and bust.

He also rebukes his critics by saying we did not call clearly in 2005 or 2006 that we wanted higher rates. I do recall calling for the debts to be reined in, and recall both the Conservatives and Lib Dems in opposition highlighting the dangerous levels of bank gearing that were allowed to emerge. These could have been corrected by quantitative restriction or regulation on the banks at the time. I called for more cash and capital requirements, something we now have in abundance after the crisis.

The message of the Governor’s speech is that in future the Bank will take a softer line on inflation all the time output and growth are disappointing. They need to be careful. As we have seen in recent years it is possible for inflation to reach uncomfortably high levels without overheating in the economy. It also ceases to help recovery. The recent high inflation has hit real incomes and cut consumption expenditure as a result.

I was delighted to read yesterday that Mr Osborne is asking why we cannot bring our troops home earlier from Afghanistan. It is good to know the argument has got through to a senior Cabinet member and he is now asking the right question.

I do not think any more of our troops lives should be put at risk on patrol or active service in Afghanistan. I also think it would be handy to save the money. At last count the government has spent £17 billion on the Afghan intervention, over and above the normal cost of the personnel involved.

It had to happen sometime. Someone in the magic circle had to ask the obvious question. Why is the government solemnly paying the Bank of England interest on the government debt it has bought up? After all, the government on behalf of taxpayers, owns the Bank of England.

If I owned 100% of a private bank, and that bank bought up my mortgage from a commercial bank, I could ask my private bank to simply cancel the mortgage. I would, of course, have to tell the taxman about it! The government does not even have to do that, when it finds itself in an analogous position. The government also writes the tax law.

When asked to explain it on the BBC, Mr Peston told us that there could be a problem with the Bank’s balance sheet if the Treasury simply cancelled its debt. He said they would have to convert the outstanding gilts to irredeemables, loans with no repayment date, with zero interest. He clearly does not understand accounting or finance. Such loans would have zero value, so they would not solve the balance sheet problem Mr Peston imagines exists. Even if the zero interest bond theoretically would be repaid in many years time it would have a much reduced value from the bonds the Bank currently owns.
The government’s debts are an asset for the Bank, so anything which diminishes its value sounds like bad news.

Fortunately, Mr Peston, the Bank has bought the gilts on the back of a Treasury loan, with an idemnity from the Treasury. The Bank and the Treasury could agree to cancel the gilts (Bank assets) and cancel the Tresury loan (Bank liability), leaving the Bank’s balance sheet unscathed by the activity. The Bank would owe the Treasury the profits on the gilts it has bought, which indemnity could also be cancelled leaving the Bank all square.

And should they? That is altogether a more difficult question. It would be good, at a stroke, to cut the size of the official (gilt edged) debt by almost 40%, and cut the interest burden. It would be bad to let the markets think that the UK now just intended to print as much money as it felt like spending in the public sector over and above tax revenues. That way is the road to Weimar and Zimbabwe type inflation. If they do end up cancelling this debt, they will need to show greater resolve and success in cutting the deficit and controlling future spending, not less. It would have to be a one off, coupled with obvious commitment and achievement in returning to honest spending and honest money. Confidence is a precious flower, easily killed if the authorities look and act irresponsibly.

The award of Nobel Peace Prize to the EU is a badly judged piece of European politics. Many of us western Europeans have worked hard for peace and democracy over the last half century, whether our countries were fully part, reluctantly part or no part of the EU. Norway and Switzerland have been no more warlike than EU members.

The peace has been kept in western Europe since 1945 because all major countries became peace loving democracies with no territorial ambitions against each other. This was reinforced by NATO, which kept our peace with the communist bloc to the east. If any institution deserved the peace prize in Europe it was NATO.

Meanwhile the modern EU is causing dissension between peoples and countries in Europe. Just look at the scenes confronting Mrs Merkel in Greece recently. The EU’s involvement in the Balkans was also contentious when that region was rent by wars.