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Europe faces lost decade, says Mark Carney
Mark Carney, the incoming Bank of England Governor, has warned that Europe could face a decade of stagnation unless it takes the kind of bold measures seen in Japan.

In words that will underline his status as a monetary activist and fuel speculation that he will try to relaunch quantitative easing (QE) when he arrives in the UK, Mr Carney applauded Japan’s “bold policy experiment” to boost dramatically its own QE programme.

He said: “Europe can draw lessons from Japan on the dangers of half measures... Europe remains in recession. Deep challenges persist in its financial system. Without sustained and significant reforms, a decade of stagnation threatens.”

Mr Carney was making his last speech as Governor of the Bank of Canada before coming to the UK, where the Chancellor and the markets are gambling on him providing more stimulus to boost growth. Of the G7 nations, which includes Britain, he argued that only “Canada does not need to repair”.

His country’s success, he said, was down to “responsible fiscal policy, sound monetary policy, [and] a resilient financial system”.

His comments came ahead of what is likely to be a difficult day for George Osborne. The International Monetary Fund is expected to criticise the Chancellor’s strategy on Wednesday when it publishes its annual update on the UK economy. The “Article IV” report is expected to recommend he change his plans and borrow more to invest in infrastructure or cut taxes.

It follows calls by several senior officials last month for the UK to slow down on austerity to boost growth and get the public finances under control. It will be the culmination of a row that began in Washington last month, when IMF chief economist Olivier Blanchard said the Chancellor was “playing with fire” by persisting with austerity.

David Lipton, the first deputy managing director who will be presenting the report on Wednesday, also intervened, saying: “Our view is the pace of consolidation ought to be reconsidered.” Labour will no doubt claim today's proposals are an endorsement of its strategy.

Last week, the Chancellor pre-empted the IMF’s attack by emphatically pledging not to change course, saying: “We will stick with our approach.”

Since then, the economic data have strengthened the Chancellor’s hand. The UK has avoided a triple-dip recession, and the recovery appears to be gathering steam. Stock markets are also soaring. The FTSE 100 broke through 6,800 points to hit another 13-year high on Tuesday. The blue-chip index rose 48.24 points to close at 6,803.87.

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