Carney says Europe needs bold action to avoid Japan scenario

EUROPE could face a decade of stagnation unless it makes big reforms and it should heed the lessons of Japan, Bank of Canada governor Mark Carney said yesterday as he highlighted Japan’s bold moves to bolster growth.

In his final speech as Canadian central bank chief before he takes over as governor of the Bank of England on 1 July, Carney said Europe’s recessionary economy is being held back by fiscal austerity, low confidence and tight credit conditions.

“Deep challenges persist in its financial system. Without sustained and significant reforms, a decade of stagnation threatens,” Carney said in the speech, given in Montreal. “Europe can draw lessons from Japan on the dangers of half measures,” he said, adding that the success or failure of Japan’s massive monetary stimulus - which he termed a “bold policy experiment” – will affect the outlook for the world economy in coming years.

Eurozone banking union is one of the major reforms Carney mentioned as a necessary step towards economic health in the region. He made no specific reference to the British economy or the Bank. But in a news conference following his speech, he downplayed the influence he will have as an individual on policy decisions in his new job.