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31 October 2016

What Jacob Rees-Mogg and President Erdoğan have in common

They're no fans of central bankers. 

By Julia Rampen

One is the prickly President of Turkey, who recently saw off a coup and is now purging government employees he suspects of following his deadly rival.

The other is a traditionalist Conservative backbencher who once went campaigning with his nanny

But Recep Tayyip Erdoğan and Jacob Rees-Mogg have at least one thing in common – they both are deeply suspicious of central bankers.

Erdogan’s hatred of “the interest rate lobby” stems back to his party’s economic record. As Prime Minister, he oversaw the country’s recovery from recession, and by the mid noughties he was the pin up for a moderate, business-friendly, democratic Islamist regime. Investors  in Turkey’s booming economy were buoyed up by  reports that the country might even be on the verge of joining the EU. 

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But then the party ended. Turkey’s economy stumbled, the Arab Spring metamorphosed into a war on its doorstep, and Erdogan began acting increasingly autocratically. 

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In 2014, after the Turkish lira plummeted, the central bank decided to raise interest rates. Since this could have a knock-on effect on growth, Erdogan was furious. Anyone who defended high rates “at the beck and call of the interest-rate lobby” was committing “treason against this nation”, he railed

Rees-Mogg, too, thinks central bankers could be more patriotic. His first major clash with Mark Carney, the Bank of England chief, came in the fraught days before the EU referendum, when Carney warned of the economic impact of quitting the EU. Such warnings were “beneath the dignity of the Bank of England”, the Tory backbencher and Leave campaigner complained. 

Since Brexit, Rees-Mogg , along with former Chancellor Lord Lawson, has stepped up his complaints. In October, after Carney warned of price rises and job losses, he called him a “sore loser” who “wants to talk down the economy”. 

But in Britain’s case, the policy clash isn’t over an interest rate hike but a cut. After the Bank decided to cut its base rate to 0.25 per cent, William Hague, a Tory who backed Remain, argued such loose monetary policies were hurting savers and inflating the price of assets like property.

“Unless they change course soon,” he warned of central bankers in The Telegraph, “They will find their independence increasingly under attack.”

So what of the fates of central bankers? In Turkey, a new central bank governor was appointed this year. He cut interest rates in September, to praise from Erdogan.

In the UK, the Canadian-born Carney is expected to confirm whether he will serve the full eight year term, or step down in 2018. He has a good incentive to stick to the helm – some of the more fantastical reports suggested Rees-Mogg could replace him.