29th January 2015
Bank of England governor Mark Carney has cautioned on the current structure of the eurozone.
Speaking in Dublin, Ireland, Carney said the present backdrop and make-up puts it in an “odd position” according to a BBC News report.
Carney cited the euro, saying that sharing a currency without also sharing fiscal decisions on issues such as taxes and spending did not work. He said: “For complete solutions to current and potential future problems the sharing of fiscal risks is required.
“European monetary union will not be complete until it builds mechanisms to share fiscal sovereignty.”
As the land lies, while EU members share the single currency, decisions on spending are however made at a national level.
The BoE governor warned that the currency bloc was caught in a debt trap that could cost it a second lost decade.
He urged that the economically embattled region had to ease back on its tough budgetary policies and make fast progress towards a fiscal union that would transfer more resources from richer to poor countries.
Carney added: “It is no coincidence that effective currency unions tended to have centralised fiscal authorities.”
He added that 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 lacks other effective risk-sharing mechanisms and is relatively inflexible,” he added.
Pointing to the US, Canada and Germany, he noted central governments there have the ability to switch important financial resources to constituent states when they get into problems.
He said: “Without this risk sharing, the euro area finds itself in an odd position.”
Last week the European Central Bank (ECB) stepped up its battle to get the eurozone back on its feet by announcing a massive quantitative easing (QE) programme.
As had been widely anticipated, ECB president Mario Draghi confirmed that the Bank would inject billions into the region’s embattled economy.
The ECB said that from March, it will buy government bonds worth some €60bn per month – a figure higher than anticipated – until at least the end of September next year.