One influential central banker in Europe has emerged as a vociferous critic of German-style austerity policies of the sort that led to the election of a radical leftist-led coalition in Greece and could spark a similar populist uprising in Spain later this year.
That voice belongs not to quantitative-easing convert and European Central Bank President Mario Draghi, but the Bank of England's Mark Carney, whose headline-grabbing assault last week on euro zone budget-slashing was plainly aimed at German Chancellor Angela Merkel and her hardline colleagues.
In the blunt style familiar to Canadians from his tenure at the helm of the Bank of Canada, Mr. Carney used a speech in Dublin – actually a lecture in honour of late Canadian finance minister Jim Flaherty – to dish out a detailed analysis of what's wrong with the euro zone.
High on the list are heavy-handed fiscal policies that have been widening the divide between wealthier and poorer members of the euro club and driving the region deeper into a "debt trap" and another decade of economic stagnation. It was the right audience, given Ireland's own painful experience with a European bailout tied to deep budget cuts.
"It is difficult to avoid the conclusion that if the euro zone were a country, fiscal policy would be substantially more supportive [of economic growth]," Mr. Carney said. But budget tightening in the euro zone remains tougher than in Britain "even though Europe still lacks other effective risk-sharing mechanisms and is relatively inflexible."
He added that "a more constructive fiscal policy would help recycle surplus private savings and mitigate the tail risk of stagnation."
Mr. Carney's austerity concerns don't extend to Britain, where he is satisfied that the economic recovery remains on track. So despite the growing spectre of deflation, weaker than forecast fourth-quarter growth and a decline in commercial lending in Britain, don't expect the Bank of England to join the charge to lower interest rates led by central banks in Canada, Denmark, Switzerland, India and a handful of other countries.
When the bank's monetary policy committee (MPC) wraps up its two-day meeting on Thursday, analysts will be looking for further confirmation that rates will remain at the current historic low of 0.5 per cent at least until 2016. That would make the U.S. Federal Reserve Board the only bull left in the monetary herd.
"The recent collapse in oil prices raised enough concern even among the hawks, such that no member [of the Bank of England's MPC] is likely to vote for a rate hike at this meeting," Philip Rush, Nomura's senior Britain economist, said in a note. "Indeed, there does not appear to be even a remote, let alone significant, possibility of a change in policy."
Central bank watchers will be paying much closer attention the following week when the central bank releases its quarterly inflation report.
Mr. Carney calls the slide in energy and food prices "unambiguously positive" for the economy and is treating the accompanying sharp fall in inflation to a record-matching low of 0.5 per cent as a temporary blip that will self-correct without central bank intervention.
Still, that temporary condition could linger for some time. Even Mr. Carney suggests it could take two years for the inflation rate to reach the bank's 2-per-cent target.
Further oil price declines "in the pipeline" are likely to trigger a further drop in inflation in coming months, and it could "turn slightly negative for a period," Mr. Carney said in his Dublin speech. But he added that "it should pick up again in 12 months or so as the direct effects of a lower energy price drop out of the inflation rate."
The picture is much dimmer in the euro zone.
"On current projections, it will take the euro area eight years to achieve the recovery that Canada secured in two," Mr. Carney told the Dublin audience. And that's despite the European Central Bank's better-late-than-never venture into aggressive quantitative easing, which Mr. Carney praised as a bold move that could nevertheless trigger a bout of excessive risk-taking by investors.
For all that, the ECB's response looks timid when compared with the bond-buying binges launched much earlier by the Fed, the Bank of England and the Bank of Japan, according to numbers crunched by Nomura analysts.
The ECB's asset purchases will amount to about 11 per cent of the euro zone's gross domestic product by the end of the third quarter of 2016, although the program could be extended beyond that target date. By contrast, the Bank of Japan's asset purchases top out at nearly 45 per cent of GDP, not counting an expected further round of QE next fall. The Fed's three rounds equalled 25 per cent and the Bank of England boosted its balance sheet by an amount equal to 22 per cent of GDP.
It's not clear whether such massive stimulus has actually worked, particularly in Japan. But the best it can do in the euro zone is buy more time for thumb-twiddling political leaders to get their act together and tackle the thorny issues of structural reforms to boost productivity and competitiveness, an integrated financial system and then the seemingly impossible – fiscal union. Without them, the single currency bloc has little hope of a long-term future.
"Europe needs a comprehensive, coherent plan to anchor expectations, build confidence and escape its debt trap," Mr. Carney said. "That plan begins but does not end with the monetary policy boldness of the ECB."
It's not too late for the austerity-first policy-makers to mend their ways. But the clock is ticking, and Mr. Carney is a pretty good timekeeper.