Mark Carney slams Eurozone austerity and urges common fiscal policy

Guy Bentley
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Mark Carney argues for a new course in Europe (Source: Getty)

Mark Carney has launched a withering attack on the Eurozone's pursuit of austerity and urged a new course for European fiscal policy.

Speaking in Dublin, the governor of the Bank of England warned the Eurozone could suffer another lost decade of stagnation and unemployment.

"Since the financial crisis all major advanced economies have been in a debt trap where low growth deepens the burden of debt, prompting the private sector to cut spending further", he said.

Carney said the currency block would need to harmonise some decisions on tax and spend. He added that some of the richer member states would need to transfer money to the poorer ones.

He suggested the Eurozone could create a full transfer union or a new form of employment insurance. Carney highlighted what he believed to be a flaw in the current system in that members share a currency, but decisions on tax and spend are made at a national level.

His words will go down badly in Germany where public opinion is still strongly against ever larger transfers of wealth to countries such as Greece. The prospects for turning Europe's monetary union into a fiscal union, remain distant.

Mark Carney told an audience:

It is difficult to avoid the conclusion that, if the Eurozone were a country, fiscal policy would be substantially more supportive.

However, it is tighter than in the UK, even though Europe still lacks other effective risk-sharing mechanisms and is relatively inflexible.

He welcomed the European Central Bank's decision to adopt a form of quantitative easing to head off deflation, saying policy was "timely and welcome".

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