Jim Flaherty would doubtless say it differently – the directors give the Finance Minister a shortlist of qualified candidates and he picks the one most likely to follow the government’s agenda.
In reality, it is a very political appointment – which, in part, explains why Stephen Poloz is the new Governor.
That’s not to suggest that Mr. Poloz is not a worthy appointment. He has a PhD in economics; spent 14 years with the Bank earlier in his career and has, by all accounts, done a good job as president at Export Development Canada.
Finn Poschmann, vice-president of research at C.D. Howe Institute, called the surprise appointment “an interesting choice but not a shock to the system.”
Yet, Mr. Poloz’s most important attribute, at least as far as Stephen Harper and Mr. Flaherty are concerned, is that he understands where the government is coming from and, crucially, where it wants to go to.
This is important because the new Governor will enter the job with the tacit, if not explicit, understanding that monetary policy will have to dovetail with a fiscal track that has already been set, if we are not to have an economic train-wreck.
The Conservatives intend to balance the books in the 2015 budget, come what may. At the moment, they appear on course to do that. Mark Carney, the departing Governor, has sounded relatively relaxed in recent weeks, suggesting that the U.S. economy is picking up momentum and that should bolster demand for Canada’s exports.
However, if stimulus isrequired, it is clearly not going to come from a government fixated on austerity. The Bank has been following a policy of flexibility when it comes to monetary policy, allowing it extra time to bring inflation into line with its 1-3% target range.
The pact between the Finance Minister and the incoming Governor, even if unstated, is that the Bank will be flexible to the point of being double-jointed. Mr. Carney has warned about record levels of consumer debt and signaled that interest rates will rise sooner or later from their current 1%, as the growing U.S. economy raises the inflation rate in Canada.
Clearly for Mr. Flaherty, later would be preferable to sooner. If anyone is going to tamp down demand in the economy, it’s going to be him.
That is not to suggest that the new Governor will dance to Mr. Flaherty’s tune. In theory, the Bank sets an independent monetary policy, free from political considerations. But the two cannot work at cross-purposes and the tradition since the Coyne Affair, when James Coyne and the government of John Diefenbaker disagreed publicly, is that, in the event of irreconcilable differences, the Governor must resign.
By making the third consecutive appointment from outside the Bank’s ranks of deputy governors, Mr. Flaherty has signaled that Mr. Poloz is someone with whom he can do business.
We don’t know what Mr. Poloz thinks about monetary policy – as head of EDC that wasn’t his remit.
But he will have been grilled by Mr. Flaherty and if the two men didn’t see eye to eye, Mr. Poloz wouldn’t have spent his afternoon mugging for the cameras on Sparks Street.
Mr. Flaherty gave his tacit endorsement of the genial 57-year-old economist in the recent budget, when EDC’s powers to offer financing in the domestic credit market were extended.
It’s clear that the two men hit it off – they’re both down to earth; both love golf and Scotch. At the press conference where he was unveiled, Mr. Poloz was asked for his opinions on inflation targeting, after which Mr. Flaherty chuckled: “Boy that was a good answer – I agree with the Governor Designate.”
His export market sensibility will be invaluable – as he said at the presser, he visited 75 Canadian CEOs last year, giving him a “true anecdotal feel” about what is going on in the economy.
Mr. Poschmann said Mr. Poloz’s appointment “may indicate that the government is thinking less about monetary policy in its traditional sense, and more about the impacts of commodity prices and exchange rate movements on trade, and hence on the economy.”
But at the end of the day, it was likely Mr. Poloz’s indication that he was happy to accommodate the government’s agenda that won him the job.
Nothing impresses the members of this government more than agreeing with them.
Original Article
Source: fullcomment.nationalpost.com
Author: John Ivison
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