MONTREAL — Bank of Canada governor Mark Carney is warning governments they must withdraw their monetary support for the financial system when the time is right or risk stunting the economy.
He says public sector interventions have been necessary but global economies will only recover when the private sector assumes the risk.
In a speech calling for a new, more responsible return to globalization, Carney says the world cannot withstand a situation where governments are the agents of growth and the guarantors of financial market stability.
“Ultimately, a return to sustained growth in private sector demand that can accommodate desired private savings is essential,” Carney told the International Economic Forum of the Americas in Montreal.
He notes across the G-7, the average government deficit will be 12 per cent of GDP and, around the world, about two per cent of GDP.
As well, the G-7 countries have committed that no vitally important financial institution will be allowed to fail.
While the support has been necessary, Carney said “expedient should not become permanent.”
“The public sector’s recent assumption of some risks creates a moral hazard. If left unchecked, this will eventually promote private behaviours that will add overall risk to the system.”