Speaking in Dublin, Carney said the eurozone needed to ease its hardline budgetary policies and make rapid progress towards a fiscal union that would transfer resources from rich to poor countries.
“It is difficult to avoid the conclusion that, if the eurozone were a country, fiscal policy would be substantially more supportive,” the governor said. “However, it is tighter than in the UK, even though Europe still lacks other effective risk-sharing mechanisms and is relatively inflexible.”
Carney’s remarks come just three days after the election of the Syriza-led government in Greece presented a direct challenge to the austerity policies championed in the eurozone by Germany’s Angela Merkel.
“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. Persistent economic weakness damages the extent to which economies can recover. Skills and capital atrophy. Workers become discouraged and leave the labour force. Prospects decline and the noose tightens.