Wednesday, August 8, 2012 - 23:30

FSB'S Carney: EU Not Solidly Built, Recovery Far Off

--EU Must Have Single Regulator Under ECB, Fluid Labor Mkt
--Requires Member Fiscal Arrangements As Crisis Firewalls
--London's Fin Reputation Not Shot But Taken Hits

OTTAWA (MNI) - Mark Carney, chairman of the Financial Stability Board that seeks to bring reform and stability to world financial markets, said Wednesday night that the European Union is not solidly built and its full recovery is years away.

Carney told a BBC TV interviewer that "it's a huge concern" that there is a large decline in flows of credit from northern Europe (Germany) to indebted southern European countries, adding:

"It's a form of protectionism, but it also reveals that monetary union was built on not the most solid foundations."

"There was not a common regulator, number one," he said. There are not fiscal arrangements (in time of need) between the major countries, he said, and there is not a sufficiently fluid labor market between members.

Carney, who also heads the Bank of Canada, called as he has before and as other non-European authorities have, for a single financial regulator in the EU, operating under the ECB. He returned to that a couple of times in the interview on the BBC TV's Hardtalk program, saying:

"What's happening in Europe is that national regulators are encouraging institutions to protect themselves to the detriment of the whole European financial market, by which I mean the market related to the European monetary union. So the solution there within a common monetary union, under a common legal system, is going to be to set up a single European regulator under the jurisdiction of the European Central Bank."

Carney said there are "two degrees of dealing with the Euro crisis." The first, and it is a minimum, is "that the crisis is contained (with) adequate firewalls put in place so that Europe is going to be able to address those deeper underlying problems over the course of years." The second would be the rebuilding. "This is going to take years to rebuild the European monetary union, in our view," he said. It would take years to build the necessary political institutions, and years to address the underlying economic structures of countries, making them more competitive.

How many years would it take? Carney was asked. "I can come back here in three years and we'll still be talking about ... ," he said.

For the remainder of the interview, these points emerged:

Financial markets misread Mario Draghi, Governor of the ECB, when they rose but then fell after he said he would do what it took to save the euro, but no major announcement followed. Carney said the ECB had made a major shift in recent actions and Draghi "delivered absolutely on what he alluded to in London."

Asked if there was anything to some talk of him succeeding Sir Mervyn King as Governor of the Bank of England next year, Carney said he was focused on the FSB and the BOC and would not now and never would consider the BOE job. Interviewer: "It's a never?" Carney: "Yes."

Since Canada has high household debt, a property market heated in spots, and Standard & Poors has revised its outlook on some Canadian financial institutions from stable to negative, Carney was asked "could a baNking crisis be brewing in Canada?? He said "no is the very short answer," a major reason being that in Canada "any risky lending to the property market is backed by insurance that is provided effectively by the Government of Canada." And the Canadian government's balance sheet "is the strongest, far and away in the G-7 and amongst the very strongest in the G-20."

With the Canadian economy nearly back at capacity and the financial system "firing on all cylinders," the BOC could raise its 1.0% key interest rate, he said. However, he added a key caveat: "That said, the world's a dangerous place."

With a series of banking scandals in Britain, Carney was asked: "Is London's reputation as a global financial centre now shot?" He replied: "No it's not shot but it has taken some hits, without question." However, the UK government and regulators had been "at the forefront of implementing a new set of financial regulations ... . They've helped design many of these and they've been among the first to put them in place. So part of what we are seeing is the aftermath of a very dark period in London's financial history and the broader financial system."



Please log in to read and leave comments