By HUGO DUNCAN
Sir Mervyn King last night warned that the crisis in the global economy is ‘far from over’ – as the turmoil in Cyprus cast fresh doubt over the future of the euro.
The Bank of England Governor said the world has been rocked by a series of major crises in recent years, including in banking, in the eurozone and among debt-riddled countries.
‘Whichever crisis we are talking about it is far from over. There will surely be many unexpected twists and turns before we can truly say that the crisis is indeed over,’ he said.
King’s comments were more downbeat than his recent assertion that the recovery is ‘in sight’ in Britain.
He was speaking at a star-studded seminar at the London School of Economics ahead of two days of private top-level talks at the Bank about the future of central banking.
Among those present was Mark Carney, the current governor of the Bank of Canada who succeeds King on Threadneedle Street in July, as well as Ben Bernanke, chairman of the US Federal Reserve.
Carney will inherit a vastly more powerful Bank of England,with responsibility for controlling inflation and the economy, as well as policing banks and safeguarding the financial system.
In the Budget last week, Chancellor George Osborne paved the way for the Bank to focus on jobs and growth, as well as hitting an inflation target of 2 per cent.
It marked the biggest shake-up of the Bank’s remit since it was handed independence to set interest rates in 1997.
Olivier Blanchard, chief economist at the International Monetary Fund, warned that handing too much power to a central bank can lead to a ‘democratic deficit’ – a worry some critics have in Britain.
Larry Summers, former US treasury secretary and a professor at Harvard, said that ‘virtually everything I taught’ in economics has been called into question by the crisis.
He added that the failure to act in the crisis would have led to an ‘unbounded spiral’ of decline in the global economy.
Axel Weber, chairman of UBS, said ‘we are not out of the woods yet’ and warned that the crisis in Cyprus served as a ‘timely reminder’ of the risks in the eurozone and the banking system. He said the recent period of relative calm and subsequent rally on financial markets was ‘too good to be true’.
Bernanke defended his central bank’s aggressive efforts to bolster the US economy – and insisted it is helping other countries around the world.
The Fed has slashed interest rates close to zero and bought more than $2.5trn in mortgage and Treasury securities through its asset purchase programmes.