Paul Tucker Speaks Economics
On the 1st of November, we were honoured to have Paul Tucker, the Deputy Governor of the Bank of England, come to talk to the whole sixth form about the current European financial crisis and the role of the Bank of England.
He explained that the root cause of the crisis was that some countries had fallen behind Germany in terms of the productivity of their industry and a currency depreciation could no longer come to their rescue. Countries like Greece, Portugal, and Spain ended up with large trade deficits as their citizens chose to import rather than purchase domestic goods and services, and other countries shunned their exports for those of more productive countries like Germany. Trade imbalances have various negative consequences and as governments had stepped in to try and mitigate these problems, public sector debt had risen. He feared that unless major structural reforms took place to the economies of the indebted countries to make their exports cheaper and to enforce fiscal rules across the eurozone, there would be a danger of a repeat of the crisis in the future. However structural reform, as the UK discovered in the 1970s, is usually a very unpleasant process.He explained how there was a conflict between giving people the social and political benefits of democracy and the economic imperatives to make decisions quickly in a crisis and to plan for the medium and long term.
He is a committed democrat but explained that the Bank of England by being given independence over monetary policy, but with accountability to Parliament, was a good example of how this conflict could be partially resolved. Yet he acknowledged that the crisis had meant monetary policy and macroeconomic management in general had become more politically charged. He then answered many excellent questions fielded to him from the City girls - good practice for his appearance before MPs later in the week. We were very lucky that he was willing to give up his time and appreciated the way he was able to explain such complicated issues with such clarity.
Mr Codd Head of Economics