The dead hand of German monetary policy is now to be found at the Bank of England – and that’s a threat to us all

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I have already mentioned the interview that Huw Pill, the new chief economist to the Bank of England, has given to the FT once this morning. There is another dimension to this worth mentioning though. It is this comment, made by Pill in response to the suggestion that he did not bring diversity as most would consider the issue to the Bank:

“I do think I bring diversity on other dimensions,” he said. “I’m not sure there are many other members of the MPC who would want to be identified as an acolyte of Otmar Issing whereas I am quite proud to be identified as that.”

That is pretty troubling. Otmar Issing was the German who was first chief economist for the European Central Bank. He had but one aim. It was the elimination of inflation. Nothing else mattered. And as Pill notes:

One thing that is totally confirmed is that [as a result of his arrival the BoE] is an institution that’s in the price stability business.

In other words, the Bank will ignore unemployment. It will ignore climate change. It will ignore fiscal policy. What is happening outside the City walls will not matter to it. All that will be of concern as far as he is concerned is the control of inflation so that the value of debt, which is owned by the wealthy and owed by those less well off, does not fall. Maintenance of the existing hierarchy of wealth within society will, then, be his priority, come what may.

This is especially worrying in the light of comments Adam Tooze has made in the Guardian, where he has noted the negotiations now going on as to who will get control of German economic policy in the new governing coalition now being crafted in Berlin. If, as he fears, the FDP get this then a hard line will be taken:

The FDP stand for low taxes, debt limitation and a hard line towards Germany’s European partners. The climate crisis is to be addressed by private investment and carbon pricing.

The balanced budget brigade will be back - and will be demanding the same across Europe. The policy will be to repay government debt, however much austerity that creates. Inflation will again be the priority. And as for climate? That will be considered an issue for others, but not for government. And because of the power of Germany this will be the line it will promote for the EU as a whole.

That's bad news for Germany and the EU. But we have a person of similar persuasion now at the Bank of England. That is very bad news for us all.

As Pill notes during his interview, his attitudes may not make him popular, either within or outside the Bank, but he does not care. It is only inflation that matters to him - and everything else is secondary. Such people are dangerous. He has power.