Balls warns King on Bank credibility

Ed Balls, Shadow Chancellor, has criticized Mervin King, governor of the Bank of England, says he should get off the political arena and stop tying his credibility to the coalition "extreme" deficit-reduction plans.

In an interview with the Financial Times, Mr Balls drew comparisons between the attitude of Mr King and the backing lent by the Bank of England on the fiscal hawks in the Treasury during the Great Depression.

"The last thing you would ever want is for the Bank of England to draw into the political arena," said Mr Balls, one of the architects of the plan of Labour in the year 1990 to the Bank its independence. "The governors should be very careful about tying themselves too closely to tax strategies, especially if they are extreme and make their work on monetary policy is complicated."

Mr Balls believes that the governor of the Bank is risking its reputation by endorsing the policy that could tip Britain into a double-dip recession and a period of mass unemployment.

In a comprehensive interview, Mr Balls said that George Osborne, Chancellor, was the "fatal mistake" of drafting of economic policies to suit its political goals.

However, Mr Balls' claim was undermined by Mr King's apparent endorsement of the approach of the Minister of Finance. This week the governor said: "We need a plan A. This country needs a fiscal consolidation from its largest peacetime deficit ever."

David Cameron, Prime Minister, on Friday attacked Mr Balls for "misguided" criticism of Mr. King, saying they showed a "complete lack of decision".

"What the governor of the Bank of England said this week about the rescheduling is extremely powerful and I must say that I think Ed Balls is not only misleading, I think he showed a complete lack of understanding of attacking the governor of The Bank of England in the way he did, "said Mr Cameron. "Very, very wrong. But not atypical."

In his FT interview, Mr Balls said a double-dip recession was a possibility - although "not the most likely outcome" - and argued that Mr. King and the monetary policy committee have so far to the right to maintain interest rates at 0.5 percent.

The criticism of the political role that Mr King's echoes that of some of the MPC members who expressed concern about the "overly political" attitude of the governor to sobriety of the coalition program.

Mr Balls was appointed shadow chancellor last month after discharge Alan Johnson insisted Mr Osborne should slow the pace and scope of its fiscal squeeze, in light of declining growth and rising unemployment. He also endorsed Labor policy of halving the deficit over four years, but said that any plan should be dependent on economic conditions, even hinted that the strategy might be too harsh on the current situation.

"If we in government we would halve the deficit over four years," he said, adding that consumer confidence plummeting and unemployment would not rise as Labor had won the elections.

In the interview, Mr Balls distanced himself from Gordon Brown, his former patron, and admitted that he was too bright in the past.

He also accepted partial responsibility during his Treasury years, for failing to spot the development of systemic risks in the economy.