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Carney backs EU fiscal union to avoid ‘debt trap’

Bank of England governor Mark Carney has warned the EU it must ease austerity measures to avoid “sinking deeper” into a debt trap, the BBC reports.

Speaking in Dublin yesterday, Carney said EU member nations must form a fiscal union and nations with a stronger economy need to be more willing to support weaker economies in the Eurozone.

He said: “For complete solutions to both current and potential future problems, the sharing of fiscal risks is required.

“It is no coincidence that effective currency unions tend to have centralised fiscal authorities whose spending is a sizeable share of GDP – averaging over a quarter of GDP for advanced countries outside the euro area”.

While he did not mention any one member state in his speech, the central banker warned failure to form a fiscal union would lead to a prolonged period of decline.

He says: “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.

“As difficult as it has been, some countries, including the US and the UK, are now escaping this trap. Others in the euro area are sinking deeper.”

His remarks come after the EU last week confirmed an £822bn programme of quantitative easing, which Carney said would encourage spending and keep interest rates low within the Eurozone.

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. I doubt very much if, when creating the EU, Germany envisaged being expected to bail out ad infinitum weaker members of the club every time they come knocking at its door with a begging bowl in their hand.

  2. Germany will eventually cede to this requirement else the euro project will wither on the vine. The cheap euro keeps their exports thriving and they only have to look across the border to the Swiss to see the potential consequences if the euro becomes defunct and they go back to deutschmark.

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