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The inscrutable king

To his supporters,Mervyn King is indeed the "hero" of the recession. To many who have had to deal wi

As the Conservatives propose enhanced powers for the Bank of England and its governor, Mervyn King, a fresh twist comes to light amid the flying mud of the credit-crunch blame game. The New Statesman has been told that King initially opposed the 1.5 per cent interest-rate cut in November last year, for which he later took credit.

Some see the episode, if it turns out to be true, as characteristic of King's tendency to obstruct behind the scenes. It is worth remembering that he opposed the controversial intervention over Northern Rock last year, repeatedly talking of "moral hazard" and the need to allow banks to fail. Similarly, it took several wasted months to persuade him to agree to the introduction of the special liquidity scheme, eventually introduced in April 2008. Such was King's reluctance that government officials started to draw up plans for a "separate operation" to implement the scheme, independent of the Bank. When King warned against "significant fiscal expansion" on the eve of the G20 in April it was not the first time that the conservative governor had attempted to obstruct the strategy of Brown and Darling for reinvigorating the economy through fiscal stimulus.

In recent times, King has been having private meetings with senior Tories - including, obviously, the shadow chancellor, George Osborne. After one such meeting last October, Osborne horrified Treasury officials by discussing the need for bank recapitalisation in a BBC interview. The timing was criticised because of its sensitivity to the markets.

At the same time, the governor, I understand, is barely on speaking terms with Gordon Brown and Alistair Darling. King is keen to be portrayed as the hero of the recession, as he was - with some dutiful criticism - by Alex Brummer in our last issue. Over the past two years, King has repeatedly changed his positions, and all the while he has sought to claim that he has never put a foot wrong. Now, I have more detail on one of those U-turns from someone who was present at the dramatic meeting of the Bank of England's Monetary Policy Committee last November. Several members, led, I understand, by Professor David "Danny" Blanchflower (who had been presciently pushing for interest-rate cuts throughout the year), threatened to resign at a press conference unless King changed his mind. King, having opposed rate cuts, was forced into a humiliating climbdown by agreeing to a 1.5 per cent reduction on 6 November.

A spokesman for King denies the claim, describing the resignation threat as "complete nonsense". The spokesman cites the minutes of
the meeting, which show that King voted for the cut. The row that surrounded the vote, however, is not minuted. Whatever the truth behind King's various positions during the credit crunch, one thing is certain: government insiders now rue the day they were forced, because of circumstances, to reappoint King to a second term as governor at the beginning of last year. "It is clear that having [King] as a personality has made life more difficult," says one. "The Treasury has had to spend a lot of time managing that difficult relationship." Treasury officials deny it, but Darling is said to have described King's reappointment as Brown's "biggest mistake". Brown, too, is believed to be "infuriated" by King's performance over the past two years.

To his supporters, King is indeed the "hero" of the recession. To many who have had to deal with him, in government and at the Bank, he has made the financial crash harder, not easier, to combat.


Relations between Boris Johnson and his party's leadership have reached breaking point with new and potentially damaging divisions over the mayor's plans for London.

Behind the scenes, Tory high command has decided against three specific policy proposals that Johnson has demanded for the party's next election manifesto. The first is Johnson's backing for Crossrail. Tory opposition to this will infuriate
City financiers, who see it as crucial to London's future. On this, a spokesman for the mayor told me: "There is a wide consensus around the huge importance of the Crossrail project to the London and UK economy, and construction has already begun." So Johnson is resolute.
The second is Johnson's plan for an estuary airport, and the third is his desire for enhanced mayoral powers. David Cameron is desperate for Johnson to stand for re-election as mayor in 2012, so his fellow Old Etonian does not return to the Commons to pursue the Conservative Party leadership that he still privately craves. Johnson faces a dilemma over whether to continue as mayor or seek a safe Tory seat.

His public attempts to undermine Cameron first emerged last August, when he flatly contradicted Cameron's oft-repeated claim that Britain is a "broken society". Writing in his Telegraph column, which he says provides a "chicken-feed" sum of £250,000, Johnson said: "If you believe the politicians, we have a broken society . . . what piffle that is." Since then, Johnson has openly opposed opportunistic attempts by Cameron and George Osborne to attack City bonuses. Now Osborne has got his revenge by blocking the mayor's latest ideas. Both, incidentally, see themselves as Cameron's successor. That looks like one to watch.


A cautionary tale from Brussels underlines the urgent need for the more coherent EU foreign policy that some hope will follow if the Irish electorate votes "Yes" in October and finally allows the Lisbon Treaty to be signed. Before their presidency of the EU expired on 1 July, the Czechs drew up a resolution calling for a two-state solution to the Israeli-Palestinian conflict. Although the language was unexceptional, the British, among others, were enthusiastic about the declaration, pointing out that this was the first time the EU had explicitly called for East Jerusalem to be the capital of a future Palestine. At which point the Czechs, apparently fearful of upsetting Israel, took fright and ended up arguing - successfully - against their own proposal. The new treaty cannot stop arguments; but at least the single new foreign policy supremo it would create should be able to minimise such diplomatic embarrassments.


One candidate for that role of high representative is the former Swedish prime minister Carl Bildt. He is the choice of Britain's Centre for European Reform. But its clever director, Charles Grant, fears the French will block Bildt for backing Turkish EU membership in Le Figaro last month. "That made Sarkozy angry," he says. Bildt "tends to say what he thinks and that is not always wise in politics or diplomacy".


James Purnell may be gone from government following his resignation as work and pensions secretary, but he is obviously not forgotten. At a debate to launch his new Open Left project, I spotted senior advisers to roughly half the cabinet, including Alistair Darling, Ed Miliband and Douglas Alexander, as well as several MPs.On the platform with his on-off political partner Jon Cruddas, Purnell adopted leftist positions. Labour should be about "radical redistribution of income and power", he said, arguing that "people on the left are all egalitarians".

Afterwards, I asked him if one of his biggest fans, Tony Blair, would use such language. Purnell denied he was gravitating away from his old mentor's way of thinking, pointing out that he had earlier ducked a question on how to tackle the super-rich, to the disappointment of some in the audience. But, he said, "If Tony came along now, then he would have a whole different set of approaches to [when he became leader in] 1994." Did Purnell speak to Blair on the day he resigned? With this question, for the first time that evening, Purnell declined to engage.

James Macintyre is political correspondent for the New Statesman.

This article first appeared in the 27 July 2009 issue of the New Statesman, On tour with the far right