During his time at the Bank of Canada, governor Mark Carney has been infallible. He won international accolades and respect from his peers, and snagged prestigious posts at the Financial Stability Board and, of course, the Bank of England. His aura is so powerful that Avery Shenfeld, chief economist at CIBC, distributed a note to clients in December with the lyrics to “Candy Man” rewritten to feature Carney in the starring role. (The refrain: “The Carney Man/Oh, the Carney Man can.”) Though it was tongue-in-cheek, Shenfeld’s wonky ode nevertheless captures the sentiment around Carney: the guy can seemingly work miracles.
But this year, the shine will finally start to come off the golden boy of monetary policy. The reason is not because of any personal shortcomings but because of the enormity of the challenge he’s taken on as governor of the Bank of England. The economy in Britain is in bad shape, and Carney is powerless to revive it single-handedly. A central bank, despite being a steward of the economy, can only do so much to encourage growth—particularly today, when the world just endured what was far from a typical recession. Carney is taking over an institution entrusted with huge new responsibilities. And then there are grandstanding politicians and vicious British journalists to contend with, all of whom will be eager to criticize the well-paid foreigner.
He’s already found himself in the middle of two controversies. A Globe and Mail article last month detailed the federal Liberal party’s efforts to woo Carney to run for the leadership, and reported he was “responsive” to the party’s flirtations. The Bank of Canada issued a statement clarifying that Carney did not violate any conflict-of-interest rules, but even the appearance of politics mixing with monetary policy could damage the hard-won credibility and independence the central bank has established over the past couple of decades. British politicians looked on with concern. “He’ll have to be far more careful over here,” Liberal-Democrat Matthew Oakeshott told the Guardian. “No riding with [David] Cameron or skiing with [George] Osborne.” An annual housing allowance worth $400,000 for Carney is also drawing fire. “I think even by MPs’ standards it is a remarkable amount of money to live on in London,” a Labour politician told the Daily Mail. “It is just comical.”
It won’t get any easier for Carney when he actually starts the job in July. The U.K. economy has not recovered from the financial crisis. Gross domestic product actually shrank during the first half of 2012 before growing by only 1% in the third quarter. In addition to pulling the levers of British monetary policy, Carney will have to remake the Bank of England’s ossified culture. Three independent reports were commissioned last year into the Bank of England’s operations. The conclusions were much the same: the bank was too hierarchical, and junior staffers felt compelled to tell superiors what they wanted to hear, stifling change. Not only will Carney have to fix that attitude, he’ll be managing a very different central bank than he has been in Canada. That’s especially true as the BOE assumes responsibility for regulating the U.K.’s financial sector. That means Carney will really be doing two jobs. “There is definitely a concern that this job is too big for anybody,” says Richard Barwell, an economist with the Royal Bank of Scotland.
Britain’s dysfunctional financial institutions will fight back aggressively against tightened regulations. Public sentiment toward the banking sector in Britain, meanwhile, is hostile. Carney will no doubt be attacked if he is perceived as being soft. Already some commentators are using Carney’s 13 years at Goldman Sachs to vilify him. “So be very afraid,” wrote a columnist for the Guardian. “Carney is a central banker steeped in the culture and practices of Goldman Sachs’s investment banking arm.”
The decisions Carney will have to make as governor of the Bank of England are not nearly as obvious as those he made while at the Bank of Canada, the responsibilities are far greater, and the stakes are much higher. That opens the door to potential missteps and criticism, throwing his heroic image into jeopardy.
Of course, what happens here in Canada could have the same effect: central bankers’ reputations are prone to retroactive re-evaluation. Carney has kept rates very low in order to keep the economic recovery going, a policy that’s also inflated household debt to record levels. After Carney jets off to London, his successor will have to deal with that dangerous situation. Carney himself doesn’t seem particularly concerned about his legacy. “What would be entirely wrong would be to manage policy to my horizon,” he said at a December press conference. “We’re not going to try to cram a bunch of decisions into the next six months.”
That’s the right attitude for a public servant like Carney to have. And given how ambitious Carney is, he has likely longed to burst into an environment as tumultuous as Britain. But he’ll be lucky to escape with just a few bruises.