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Tories concerned by Carney’s ties to Liberals, but will avoid fight, sources say

Bank of Canada Governor Mark Carney.


Finance Minister Jim Flaherty is privately disappointed and concerned over Bank of Canada Governor Mark Carney's courtship by federal Liberals as well as his holiday stay at the home of an opposition MP, sources say.

The Finance Minister feels strongly that public servants should maintain the appearance of impartiality and is concerned when actions call that into question, sources say.

Mr. Flaherty, Mr. Carney's main point of contact with the Harper government, has had little to say publicly on the matter. But he did tell Sun Media earlier this week that the Bank of Canada governor has assured him he's not engaged in political activity, adding that "it's very important that there be no perception of conflict.

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"Mark says there is no partisan political activity," he told Sun Media in an interview aired Thursday. "That's very important. It's fundamental, I think, for confidence in our institutions."

The Prime Minister's Office, meanwhile, has repeatedly declined media requests for comment on the matter, leaving it to the bank governor the Tories appointed five years ago to defend himself.

Conversations with Conservative MPs suggest Ottawa is quiet because it's loath to spark any conflict that would place it at odds with the Bank of Canada, an institution that is supposed to be at arm's-length from the federal government.

The Bank of Canada has developed an operational independence today that is the envy of most of the world. But that independence rests largely on an understanding that there is a line between the management of monetary policy and politics that neither the Governor nor the Finance Minister should cross.

The Globe and Mail reported this month that Mr. Carney, his wife and family spent about a week at the Nova Scotia seaside home of Liberal finance critic Scott Brison this past summer, a visit that occurred while Liberal Party members were mounting an effort to recruit the public servant as a leadership candidate.

Mr. Carney has said he did not ask anyone to do anything on his behalf – "I never made an outgoing phone call" – but Liberal sources added that he asked questions about a potential bid, fuelling the sense that he was interested in a transition to politics.

Bill Robson, president and CEO of the C.D. Howe Institute, said Mr. Carney's actions could put the bank in tricky territory.

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"The problem is not that Mark Carney has obviously stepped over the line. The problem is that even the appearance of a conflict of interest – that other objectives might affect his management of monetary policy – can make it easier for someone who wanted to interfere with that management to step over the line from the other direction," Mr. Robson said of the demarcation between monetary policy management and politics.

The Tories, however are treading carefully in public – apparently for two reasons.

First, Mr. Carney is leaving within six months to helm the Bank of England. Second, any public disagreement with Mr. Carney, who enjoys considerable acclaim as a steady hand at the bank's wheel, would confuse Canadians. "It's a distraction from our general economic message," one Tory MP explained.

Not all Conservatives are upset with Mr. Carney. One cabinet minister, speaking privately, defended him and predicted that despite Mr. Carney's poor handling of the Liberal courtship that this controversy had not injured his final months of relations with Ottawa. Conservative Senator Doug Finley also used his Twitter account Thursday to laud the governor as "Non political" and a "Great guy."

Interviews with dozens of Liberal sources showed that Mr. Carney's boosters were trying to put together a team of organizers and supporters over the summer months in the hope of fielding a fiscally conservative and credible alternative to Liberal MP Justin Trudeau.

The central banker decided to stay out of the Liberal race and went on to accept a plum new job in England, knowing that it would be hard to jump into the partisan arena directly from his Bank of Canada post.

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The Bank of Canada announced after The Globe published its story that an in-house lawyer had found Mr. Carney in the clear over the Brison stay because the two are personal friends and it was a personal vacation. The central banker himself has offered little public comment on the matter.

In comments to reporters Wednesday, Mr. Flaherty threw the ball back into Mr. Carney's court, suggesting it's up to the banker, "if he chooses," to answer questions about conflicts of interest.

"I'll let the Governor respond, if he chooses, to questions about conflicts at the Bank of Canada," Mr. Flaherty told reporters Wednesday. "I imagine he might at some point be willing to respond," the Finance Minister said.

On Thursday, the Bank of Canada said that Mr. Carney had no statement to offer. They said he has no media activity planned for the next several weeks. He's scheduled to hold a news conference in late January to discuss a monetary policy report.

Nevertheless, the governor is making personal efforts to address the controversy.

Mr. Carney surprised a group of reporters and political officials in Ottawa Wednesday evening by showing up at a year-end party at Metropolitan, a popular downtown restaurant. He repeated past assertions about having been courted previously by partisans of other parties than just the Liberals, according to an account by a Sun Media reporter.

Central bank independence is not a blank cheque, economists say. The Bank of Canada is free to achieve its stated objectives in the best manner possible, but in return the Bank – and its Governor – is expected to focus on monetary policy and not veer into other aspects of government policy and politics.

Chris Ragan, a McGill University economics professor who also holds the David Dodge Chair in Monetary Policy at the C.D. Howe Institute, said Mr. Carney's actions have raised a few eyebrows.

"I am concerned anytime something happens that puts at risk the operational independence of the Bank of Canada. This is a huge asset whose value must be maintained," said Mr. Ragan. He was a visiting economist to the Finance Department from January, 2009, to June, 2010, where he served as a senior advisor to the minister and other senior officials

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