Eurozone countries should share more risks and allow taxpayers’ money to circulate more freely as it does between countries in the UK, Mark Carney said in an unusually outspoken address last night.
The Bank of England governor hinted that Greece’s troubles would be less severe if it could access more German money, comparing the situation to that between Scotland and the rest of the UK.
“A powerful demonstration of this comes with the recent sharp fall in global oil prices. Because this risk is shared across the entire UK (which on the whole is a net beneficiary of lower oil prices), the net impact on the Scottish public finances is a mere one-tenth of what it would have been if there were no risk sharing,” he told an audience in Dublin.
“There are few clearer illustrations of the benefits of sound fiscal arrangements in a currency union.”
The UK has recovered more quickly than the Eurozone because its regions shared risks, the banks were cleaned up more quickly, and sterling fell 25 per cent, Carney said. “Without this risk sharing, the euro area finds itself in an odd position,” he said.
As a result, the deficit is falling and growth has returned, he said.
Carney also praised the European Central Bank for the “boldness” of its plan announced last week to buy hundreds of billions of euros of government bonds to fight the “potentially dangerous” combination of weak growth and falling prices.
By contrast, the governor said the Eurozone still needs more public spending in its poorer parts. “It is difficult to avoid the conclusion that, if the Eurozone were a country, fiscal policy would be substantially more supportive,” said Carney.
“Europe needs a comprehensive, coherent plan to anchor expectations, build confidence and escape its debt trap,” Carney said in his speech.