Business leaders 'not facing imminent financial crisis'

Thumb_richard-edgar

The big economy debate at the World Economic Forum is traditionally scheduled for the Saturday morning as finance ministers and central bank governors troop on stage in front of a packed auditorium for an amble around topics of the day, marshalled by the FT's charismatic chief economics commentator, Martin Wolf.

This year was different. Mr Wolf was in the chair still but began by describing this year's meeting as the "sigh of relief" WEF; for the first time in years participants were not facing an imminent financial catastrophe.

Mark J. Carney, Governor of the Bank of Canada attends the annual meeting of the World Economic Forum (WEF) in Davos. Credit: Reuters/Denis Balibouse

More prosaically, the debate was held in mid-afternoon and Mark Carney, soon switch jobs from heading Canada's central bank to our own in London, quipped from the stage that rather a lot of participants seemed to have decided the crisis was completely over and had gone skiing instead. Your correspondent, dear reader, was not among them and heard an unusually revealing discussion.

For the British press present the star turn was Mr Carney, of course. He hasn't given anyone a proper interview since his appointment was announced, preferring to save his first comments for the Treasury Select Committee who plan to grill him early next month. As a result we're itching to find out how his governorship might be different from Sir Mervyn King's.

ITV News was in Toronto in December when Mr Carney gave a speech which appeared to signal he favoured ditching Sir Mervyn's cherished inflation target in favour of nominal GDP targetting - a means of focussing on growth instead of inflation which some think more appropriate as our economy stumbles into a third year of stagnation.

Mark Carney takes over from Mervyn King on 1st July 2013. Credit: www.bankofcanada.ca

This caused quite a ruckus and central bankers don't like rucki (or ruckuses, for that matter).

So today Mr Carney avoided directly answering a question on nominal GDP targetting and instead gave a lengthy exposition which appeared to put him back in line with Sir Mervyn's thinking of still targetting inflation but using discretion in how quickly to do so to avoid strangling growth too soon with high interest rates.

The Governor of Bank of England Sir Mervyn King insists a gentle recovery is underway despite fears of a triple-dip recession. Credit: Reuters/Darren Staples

Sir Mervyn gave a speech this week and mooted changing the Bank's remit perhaps allowing it to communicate more clearly - and again, Mr Carney mentioned communication (possibly code for the Bank giving explicit guidance about how long it would hold rates instead of making us guess, which would encourage companies to invest). Changes when Mr Carney takes up the reins in July may be subtle.

Elsewhere on the podium there was less agreement and Christine Lagarde of the IMF rejected criticism of the eurozone response to the crisis from Angel Gurría of the OECD.

International Monetary Fund (IMF) chief Christine Lagarde addresses the annual meeting of the World Economic Forum (WEF) in Davos. Credit: Reuters/Pascal Lauener

So with very bright people at the top of financial institutions around the world in disagreement on what to do, should we be worried? Who has the right answer?

Perhaps the last word should go to a man who spoke earlier in the day: George Soros. He made notoriety (and many billions) by betting against the pound. Today, in a packed, tiny room, he expanded on a theory that economics fails because it tries to be an exact and predictable science - but people are unpredictable so the economy doesn't respond as a machine does when levers are pulled.

What he and the panel in the debate agreed on was that good work has been done, much more needs yet to be done (bring those skiers back down from the mountain) and we should see the results of those labours some years from now. Patience...

Read more: New BoE Governor reveals lessons he will bring from Canada