Interview with a Bank of England 'dove'

There was something for everyone today in my interview with Adam Posen, the US economist on the Bank of England's Monetary Policy Committee (MPC), who was the first to vote in favour of more quantitative easing, long ago in 2010.

For those who think we're all too gloomy about the UK, you might be surprised to hear that the Bank's leading "dove" was upbeat about Britain's future, at least over the long-term.

He thinks we have great strengths, including a strong monetary policy framework and a government whose fiscal policy is credible in the financial markets (you might remember my take on Britain's institutional strengths, a few weeks ago).

US comparison

If you're George Osborne, Dr Posen thinks you're right to have followed his advice about boosting lending to small businesses, with that policy of "credit easing" you announced in your speech to the Conservative Party conference.

If it works, the MPC member thinks credit easing could make a significant difference to the recovery - in part, by making quantitative easing more effective.

Mr Osborne may also be glad to hear that Mr Posen thinks America's better performance this year is related to the same issue: their financial system is just better at channelling credit to small and medium-sized firms.

In Posen's view, budget cuts by individual US states this year have more or less offset the looser budget policy at the federal level.

So, Ed Balls is wrong to argue that America is growing faster because it had a different approach to the deficit.

Then again, you might say that counts against Mr Osborne as well.

In the summer, the Chancellor used to point to America's weak growth numbers as evidence that looser fiscal policy couldn't guarantee a strong recovery.

If there hasn't been much overall fiscal stimulus, then you can't say it hasn't worked.

Eurozone dangers

But I said there was something for everyone here, and Ed Balls should not feel too miffed.

This outspoken MPC member does agree with the shadow chancellor when it comes to the eurozone, and its impact on our economy.

Posen thinks that ministers are wrong to suggest that the single currency has single-handedly thrown our recovery off track.

The question marks hanging over the single currency might have played on our underlying weaknesses - particularly in the financial system - but he says output and employment growth had started to slow, long before the eurozone crisis took another step for the worse.

We'd have had a pretty bad year, even without the dramas over the euro.

The bottom line from this thought-provoking interview is that the world is a dangerous place - but we ought to take comfort in our underlying strengths, and the fact that policy-makers have space to act.

Or fate is very much in our own hands. Unlike in Greece.