June 12, 2012 / 11:02 PM / 5 years ago

Canada's Carney pushes for European banking union

OTTAWA (Reuters) - European leaders should agree to create a banking union at their June 28-29 summit, building on their deal to help Spain, Bank of Canada Governor Mark Carney, who also heads the G20’s Financial Stability Board, said in an interview broadcast on Tuesday.

“At that time, they can widen and put on more solid footing the initiative they took for Spain on Saturday. That is to say, create a European banking union. That’s very important,” Carney said in an interview with RDI television, the Canadian Broadcasting Corp’s French-language news service.

Several European officials called on Tuesday for swift moves to create a euro zone banking union, which could include a cross-border banking supervisor, a deposit guarantee plan and a bank resolution fund.

Carney said the agreement by euro-zone finance ministers on Saturday to lend Spain up to 100 billion euros ($125 billion) to recapitalize its banks took the region a step closer to such a union.

“With these measures, the European authorities are starting to cut the link between the sovereigns and the banks,” he said. “That is one of the advantages of a banking union. Just as in Canada, the health of a Canadian bank is not a provincial matter, it is a national matter.”

When asked about Canadian monetary policy, Carney did not rule out the possibility of an interest rate hike before the end of this year.

“It depends on the evolution of international factors and factors here in Canada. Some marginal withdrawal of the present considerable monetary policy stimulus may become appropriate. We’ll see,” he said.

In a June 5 statement explaining its decision to extend a freeze on interest rates at 1 percent, the Bank of Canada continued to signal it may have to raise rates but it softened its language somewhat.

The deterioration of the European debt crisis and of financial markets since the bank’s previous statement in April prompted the change in its tone, Carney said.

“But the underlying economic trend here in Canada remains almost the same as before,” he said.

Carney rejected an argument pushed by opposition leader Thomas Mulcair that the strong Canadian dollar was the result of high prices for the country’s oil on world markets, and that this trend was hollowing out the manufacturing sector in a phenomenon known as “Dutch Disease”.

“It’s too simple. The factors influencing our currency are more complex than one price or another, one interest rate or another. There are several factors and our economy is much more integrated than that,” he said.

“I reject that argument completely.”

Reporting By Louise Egan; Editing by Peter Galloway

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