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Eurozone needs to 'share risks', warns Bank governor

Mark Carney

Bank of England governor Mark Carney has warned the current structure of the eurozone puts it in an "odd position".

Mr Carney said sharing a currency without also sharing decisions on taxes and spending did not work.

"For complete solutions to current and potential future problems the sharing of fiscal risks is required," he told an audience in Dublin, Ireland.

Currently, EU members share the euro currency, but decisions on spending are made at a national level.

Mr Carney said "it is no coincidence" that effective currency unions tended to have centralised fiscal authorities.

"European monetary union will not be complete until it builds mechanisms to share fiscal sovereignty," he said.

He said the current system in the eurozone made it stand out from federal countries like the US, Canada and Germany, where a central government has the ability to transfer significant financial resources to constituent states as-and-when those states run into severe difficulties.

"Without this risk sharing, the euro area finds itself in an odd position," he added.

Analysis: BBC economics editor Robert Peston:

In saying that monetary union cannot work without fiscal union - or the ability and willingness of countries with stronger public finances to support those that are struggling to grow under the burden of big debts - he is in effect saying that Germany ought to do more to support the likes of Italy, Spain and France.

There is nothing new in Mr Carney's argument. Almost from the moment the eurozone was created, economists and politicians have argued that monetary union in Europe could not endure over the long term without fiscal and political union - or the transfer of national taxing and spending powers to a central decision-making body.

But it is the timing of the intervention which is striking, coming as it does a few days after the European Central Bank launched more than a billion euros of public-sector and private-sector debt purchases, or quantitative easing, as the eurozone continues to flat-line, and as eurozone countries led by Germany baulk at providing further financial help to Greece.

Read more from Robert.

The speech comes just days after after the European Central Bank said that it would inject at least €1.1 trillion (£834bn) into the ailing eurozone economy, in a bid to encourage spending.

Mr Carney said the ECB's actions were "timely and welcome", but warned the "ECB alone cannot eliminate the risks of a prolonged stagnation".

"Europe needs a comprehensive, coherent plan to anchor expectations, build confidence and escape its debt trap. That plan begins but does not end with the monetary policy boldness of the ECB," he added.

He also acknowledged that Europe's leaders did not currently foresee fiscal union as a part of monetary union.

"Such timidity has costs," he concluded.

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