“He did an incredible job achieving a seamless transition from a central bank that was among the world’s least independent to one that was operationally independent,” said Buiter, a founding member of the Bank of England’s independent rate- setting board. “He did that flying blind.”
George earned the nickname “Steady Eddie” for keeping a lid on inflation during his time as governor from 1993 to 2003 and for what was seen as a sure touch dealing with crises. While Brown’s decision as finance minister to give the bank independence made George one of the most powerful men in global markets, the career central banker opposed Brown’s move to simultaneously strip it of financial supervisory powers.
Ten years later, the collapse of Northern Rock Plc prompted a wave of criticism that the Bank of England should have been overseeing the banking system all along.
The son of a post-office worker, George took over the top job from an aristocrat’s son, Robin Leigh-Pemberton, in 1993. At the time, the U.K. was trying to restore its reputation with financial markets after the pound’s ejection from the European Exchange Rate Mechanism the previous year.
Over the next four years, George exerted more and more influence over monetary policy, which was set by then-Chancellor of the Exchequer Kenneth Clarke. When Tony Blair led the Labour Party back to power in 1997, Brown gave rate-setting power to the central bank within days to show markets the party could be trusted to steer the economy.
“Eddie will be remembered as the Governor who led the Bank to independence,” said current Governor Mervyn King. “He served the Bank for more than 40 years and was an outstanding Governor, colleague and friend.”
Inflation slowed in the bank’s first six years of independence under George. Consumer-price increases averaged 2.4 percent and interest rates averaged 5.5 percent, compared with 3.2 percent and 7.1 percent respectively over the previous six years.
“It was my privilege to have worked with one of the world’s greatest and most respected central bankers,” said Brown.
A chain smoker, George sparred with Brown over the terms of independence. One of the most well-connected men in the City, London’s financial district, George opposed Brown’s decision to give its banking oversight powers to a newly created Financial Services Authority in 1997.
Delighted
“He was delighted by independence, but absolutely appalled at losing half the bank,” said Christopher Allsopp , who was a member of the Monetary Policy Committee between 2000 and 2003.
George said at the time that the move was premature. Earlier this year, Brown handed some of those powers back to the Bank of England after the collapse of Northern Rock prompted a rethink of Britain’s financial governance.
“Had regulation been under the bank’s wing, some of the problems we’ve seen in the past few years might have been identified earlier,” said Julian Callow, chief European economist at Barclays Capital in London, who worked at the central bank between 1987 and 1990.
George joined the Bank of England when he was 23, with a second-class economics degree from Cambridge University, after impressing a recruiter with his bridge-playing skills.
George worked at the Bank for International Settlements in Basel and the International Monetary Fund in Washington before returning to the Bank of England, the world’s second-oldest central bank after Sweden’s Riksbank. He retired, as governor, in June 2003.
Challenges
Among the challenges he faced as governor was the collapse of Barings Plc in 1995, after Singapore-based trader Nick Leeson racked up $1 billion of bad trades in Asia. George advised the government not to rescue the U.K.’s oldest merchant bank, sending a signal to the rest of the financial community that they needed to tighten self-regulation.
He also steered the U.K. through the Asian and Russian debt crises of the late 1990s and the global economic slowdown, aggravated by the Sept. 11, 2001, terrorist attacks in the U.S., without the U.K. experiencing a single quarter of shrinkage.
George was also deputy governor at the Bank of England in 1992 when George Soros and other investors forced the U.K. to abandon the ERM, an event which undermined the credibility of the then-Conservative government.
“He was at my side during Black Wednesday,” Norman Lamont, who served as finance minister from 1990 to 1993, said in an interview. “I valued his advice hugely.”
Some commercial bankers said in the early days of the current financial crisis that George might have been faster than King in spotting the market stresses that eventually toppled Northern Rocks.
‘Massive Shock’
“As a central banker he was very well regarded by the financial markets,” said Neil Mackinnon, chief economist at hedge fund ECU Group Plc in London, who helps manage about $1 billion in assets and is a former U.K. Treasury official. His death “is a massive shock.”
George paved the way to independence in his first years as governor. George held monthly meetings with Clarke, the last chancellor in John Major’s Conservative Party government. Nicknamed the “Ken and Eddie Show,” George offered advice to Clarke on monetary policy and Clarke had the final say.
According to both men, relations remained cordial, even though Clarke rebuffed George’s pleas to raise the benchmark rate from 6 percent in the months before the April 1997 election when quickening economic growth was fuelling inflation.
“He did get on quite well with Ken Clarke and after Clarke it was Brown and I guess his relationship with Brown was quite cool, especially after the FSA thing,” said Bill Allen, who worked with George for 21 years of his 32-year career at the bank.
Transparency
George went out of his way to make the workings of the bank, including the new inflation target and rate-setting process, more transparent in the run-up to independence.
“Having made it a more familiar institution to the public, it was easier for the Labour party to make it independent,” said Allen. “It might not have happened as soon if he hadn’t been the character he was.”
George once got himself in trouble, boasting over his ability to meet the target. In October 1998 he said job losses in the north of England were a price worth paying for ensuring low inflation. He later claimed he was misinterpreted and that he meant monetary policy can only target the economy as a whole, not regions or sectors.
The minutes of the bank’s rate-setting meetings, which reveal who voted which way two weeks after each monthly decision, show that George always sided with the majority and used his tie-breaking vote only twice, in February and March of 1998.
Bulldoze
“It was his enormous personal qualities that made him so successful,” said Buiter, now a professor at the London School of Economics. “He allowed all views to be aired fairly and unequally and never tried to bully or bulldoze people. It was a very light touch but very efficient chair. He was the ideal British chairman.”
King became the first governor to vote against the majority at the bank’s August 2005 meeting.
George shared Brown’s reluctance about joining the euro region, arguing that Britain’s faster pace of growth in the currency’s early years suggested no clear case for membership. Still, he was “very diligent to be on good terms with other central banks and wanted to help the central banks of developing countries,” Allen said.
He set up the Centre of Central Banking Studies at the Bank of England, which offers free seminars and workshops to help train central bankers worldwide.
Well-known for puffing on his Rothmans cigarettes, he was also known for the joke:
“There are three sorts of economists. Those who can count . . . (pause). And those who can’t.”
George is survived by his wife Vanessa, a son and two daughters. He was given a life peerage in 2004, as Baron George of St. Tudy in the County of Cornwall, where he had retired.
The funeral will be private, the central bank said.
To contact the reporters on this story: Svenja O’Donnell in London at sodonnell@bloomberg.netJennifer Ryan in London at Jryan13@bloomberg.net
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