Bank of England Governor Mark Carney urges eurozone to spend its way out of stagnation

Carney was echoing the sentiments recently expressed by the president of the European Central Bank, Mario Draghi

Bank of England Governor Mark Carney in Davos on Saturday (Reuters)

The Bank of England’s Governor last night took the unusual step of urging the eurozone to spend more to help the bloc break the grip of stagnation and deflation.

In a speech in Ireland, Mark Carney noted that the eurozone’s fiscal policy was tighter than the UK’s, despite the fact that the Continent’s is barely growing and prices are falling. “It is difficult to avoid the conclusion that if the eurozone were a country, fiscal policy would be substantially more supportive,” he said.

“A more constructive fiscal policy would help recycle surplus private savings and mitigate the tail risk of stagnation. It would also bridge the drag from structural reforms on nominal spending.”

Central bank governors do not usually comment on the fiscal policies of their own jurisdictions, let alone foreign ones. But Mr Carney was echoing the sentiments recently expressed by the president of the European Central Bank, Mario Draghi, who said that fiscal policy in Europe should be more supportive. He said the €1.1trn (£820bn) monetary stimulus outlined last week by Mr Draghi and the ECB would not be enough on its own to put the eurozone on the path to sustainable growth.

Mr Carney also noted that European leaders do not currently have plans either to move towards fiscal union or to loosen fiscal policy, as urged by himself and Mr Draghi. “Such timidity has costs,” he added.