'Timidity' is responsible for eurozone stagnation, says Mark Carney … An unfinished euro area explains why the currency bloc has performed so poorly since the financial crisis, Mark Carney, the Governor of the Bank of England, says. "Timidity" on the part of policymakers has cost the eurozone in the aftermath of the financial crisis, Mark Carney, Governor of the Bank of England, said on Wednesday. Speaking at Iveagh House, Dublin, to honour the memory of Canadian finance minister Jim Flaherty, Mr Carney said: "It will take the euro area eight years to achieve the recovery that Canada secured in two." – UK Telegraph
Dominant Social Theme: If those in Brussels would take significant action, the EU and euro would improve quickly.
Free-Market Analysis: Here is a good example of how top financial execs try to make sure "no crisis goes to waste."
Carney's speech this week re-emphasized the reality of this strategy. He's calling for expanded ECB and EU powers based on the lack of a "recovery" following the great recession of 2008.
The idea is so often the same when it comes to leadership strategies: Set up unstable socioeconomic and political regimes and then further consolidate power when they fail.
Mr Flaherty "would be more than a little frustrated with the euro area", Mr Carney said. The politician "remained unconvinced that Europe had fixed its problems" to his last days, he added.
The Governor said that the eurozone's poor performance mattered for the UK, as the currency bloc remains the country's largest trading partner. In order "to avoid another lost decade" he recommended that policymakers push for greater integration, and suggested that fiscal policy should be looser.
Referring to the launch of a €1.1 trillion (£820bn) quantitative easing scheme by the European Central Bank, Mr Carney said that the actions "were timely and welcome", but that monetary policy alone could not "eliminate the risks of a prolonged stagnation".
These risks exist because "the currency construction of the euro area is unfinished", he added.
He noted that UK government borrowing costs, implied by the yields on 10-year bonds, remain below the weighted-average of the yields on euro area sovereigns. "It is difficult to avoid the conclusion that, if the eurozone were a country, fiscal policy would be substantially more supportive," he continued.
He argued that like all other major advanced economies, euro area has been the victim of a "debt trap", where low growth increases the burden of debts. In turn, the private sector has cut its own spending further.
How much clearer can it be? Here's the bluntest kind of affirmation: "It is difficult to avoid the conclusion that, if the eurozone were a country, fiscal policy would be substantially more supportive."
Please recall, the EU was sold convincingly for over four decades as a trading region that would gradually consolidate immigration and emigration procedures so that people could travel quickly from one country to another.
There was no conversation about what the EU has actually become: a nascent leviathan gushing regulations, laws and dictates from the overly exuberant confines of Brussels.
Taxes were not initially discussed, nor the idea of an army, a flag, a national anthem, etc. The EU was never sold to its member-states as a "country." Even today, the EU constitution makes clear that monetary inflation ought not be used to support some countries at the expense of others.
This is in part what Carney wants to jettison. He is impatient to turn the EU into a place where one nation-state – Germany – will pay for all the rest. There is no fairness in this solution, only the blind insistence that the EU become what its elite leaders had always planned it would be.
Carney's insistence is not just willful; he is also misrepresenting Western "recoveries" – especially in the US. It is true that various top US officials have been announcing the US recovering for quite a few years, beginning with the observation of "green shoots."
But all one needs to know about the recovery is that Fed head Janet Yellen is extremely reluctant to raise interest rates in any meaningful way. In fact, throughout the West, cheap money is on tap and continually expanding. Stock markets are higher, it's true, but stocks tend to climb when money is debased.
Most recently, this extraordinary period of money printing has culminated in a chorus of calls for yet more easing as a result of an ill-defined deflationary threat. Price deflation there may be – though even this is doubtful – but monetary deflation cannot be seen at all, or not within the context of continued central bank printing.
It is impossible to evaluate the performance of the EU and euro logically based on leadership declarations. The EU was sold as a trade union when its leaders actually intended to build a United States of Europe. The euro was sold as a common currency even though its architects knew it would be disastrous – and in fact intended that its incipient crisis would create further pressure for a "closer" union.
The perceived price "deflation" that euro-leaders now perceive as so threatening either does not exist or exists in an extremely timid form. The recovery that Carney perceives exists in places like the US is not so different from the ongoing recession that Carney decries in Europe.
In other words, nothing being offered by Carney – and he is not alone – presents a truthful account of what is actually taking place in Europe.
This certainly assures us that the measures being taken currently – which mostly include the announced quantitative easing planned by the ECB – will not have their intended effect. Why should this solution work any better than ones that have failed in the past?
The pressure on the EU and the euro continues to build. The Greeks have taken a half-step out of the union already with the election of an anti-austerity government and opinion polls regarding the EU itself show increasing frustration and disappointment.
We hear nothing of this from Carney and others in the EU-camp. The nostrums that are shared appear to exist in some sort of parallel universe that does not recognize the considerable implosion of this experiment in pan-nationality.
Investors and professional money men who wish to be lulled by the soothing cadences of Carney's misinformation should take care.