Mark Carney is a close friend and colleague of Mario Draghi, the European Central Bank president. This is worth bearing in mind when considering the significance of his speech last night, in which he urged certain eurozone nations to spend more to try to get their economies going.
In short, part of the explanation for the weakness of the eurozone (and hence its recurrent existential woes) is that it has imposed overly tough austerity without (up until now) pumping much monetary stimulus into the system to compensate.
Or, to put it in his words: “It is difficult to avoid the conclusion that, if the euro zone were a country, fiscal policy would be substantially more supportive.”
Frustratingly, though, while there are plenty of graphs at the back of his speech, the key lines of it go oddly unillustrated. So here follow those important paragraphs along with the numbers they are referring to:
The euro area unemployment rate of 11½% is twice that in the UK.
Gross general government debt in the euro area is roughly the same as in the UK and below the average of advanced economies.
The weighted average yield on 10-year euro area sovereign debt is around 1%, compared to 1½% in the UK.
And yet, the euro area’s fiscal deficit is half that in the UK.
Its structural deficit, according to the IMF, is less than one third as large.
It is difficult to avoid the conclusion that, if the euro zone were a country, fiscal policy would be substantially more supportive.
However, it is tighter than in the UK, even though Europe still lacks other effective risk sharing mechanisms and is relatively inflexible. 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 and would be consistent with the longer term direction of travel towards greater integration.
It would be bold, and it would be favoured by fortune.