Germany should accept that making payments to poorer euro zone countries is in its own interests, the governor of the Bank of England has said.
Arguing for limited financial transfers and other measures to strengthen the currency union, Mark Carney says such steps in the medium-term would help Germany itself.
Interviewed on Thursday in The Irish Times, Mr Carney also says the new Greek government’s campaign to write off some of its debt is of little relevance to Ireland.
Amid uncertainty over the country’s membership of the single currency, Mr Carney says British banks have a minimal exposure to Greece.
Financial markets in Greece endured a third successive day of heavy losses after newly installed prime minister Alexis Tsipras, who wants to end years of swingeing budget cuts, called a halt to a contentious privatisation plan.
Asked his view of claims that Ireland should seek to write off debt like Greece, Mr Carney said the two countries were in “absolutely different” situations.
“The first thing to say is that the Greek situation is quite unique. I would very much hesitate to draw analogies between Greece and Ireland,” he says.
New grand plan He was interviewed before a speech in the Department of Foreign Affairs in which he called on Europe to develop a new grand plan to secure the currency.
Making the case for both private and public risk-sharing in the euro zone, he said neither the new European Central Bank stimulus plan nor economic reforms were sufficient on their own.
“What we have in the euro area is savings trapped in regions or countries and they’re not flowing freely. So what do we have to do to get them to circulate within the euro area?” he asks.
“More private risk sharing – banking union, capital markets union – and an element of public sharing, which would be some form of transfer union; and I would observe that every successful currency union has some form of fiscal arrangements.”
In addition to payments across borders, such arrangements are generally seen to embrace common tax and spending policies. Asked about Berlin’s habitual resistance to payments, Mr Carney said a medium-term plan to restore confidence would help Germany’s own position.
Germany's interests "These types of issues, building greater private risk-sharing and greater public risk-sharing, are as much in the interest of German people as they are in any constituent part of the euro zone," he says.
“Obviously, if you enter into a union, you should take steps to make that union as effective as possible, but also, in a way, that works for everybody. And the prosperity of all countries in the euro area is as much in Germany’s interest as it is in those countries’ interest, and the German government recognises this.
“I think we should acknowledge that the German government has made tremendous investments in the viability of the euro area, through various facilities such as [the] ESM [bailout fund] and in working towards structural reforms such as banking union and now capital market union.”
He has “no special insight” into looming talks between Mr Tsipras and Greece’s creditors. “This is largely an issue about Greece, as opposed to having broader lessons for other countries in the euro area.
“I’ve underscored that whereas a few years ago there were concerns of contagion from Greece to other countries, considerable steps have been taken in the interim to lessen those risks.”
