Canadians are not in the habit of thinking of their country as similar to the euro zone group of countries, but Mark Carney, in his speech to the Board of Trade of Metropolitan Montreal on Tuesday, presented Canada’s monetary union, with “internal real exchange rates,” as a much more successful version of the same phenomenon as the euro zone.
Canada’s different regions do have different price structures, though Albertans and Quebeckers, for example, do not engage in foreign-exchange transactions. Indeed, according to Mr. Carney, Canadian regions have more volatile exchange rates with each other than the countries of the euro zone – more than between Spain and Germany.
With a degree of simplification, Mr. Carney maintains that a “rising tide” in Alberta lifts “all boats” across Canada. He attributes this happy state of affairs to Canada’s having a single financial market, a flexible labour market and fiscal transfers, all of which help to offset economic shocks and to smooth adjustments. In particular, he offered Employment Insurance as a model for Europe; a pan-European employment-insurance, a means of sharing risks of job loss, could be a building block of fiscal federalism for Europe.
Similarly, he presented Canada’s regulatory framework for banking, with such institutions as the Office of the Superintendent of Financial Institutions, as a good template for a euro zone banking union. The financial crisis has shown how unwilling European banks can become to lend across borders even inside the euro zone. In contrast, Canada’s large banks, very much present across the whole country, and for all their imperfections and occasional errors – do much to spread risks, rather than letting regions suffer disruptions on their own.
This speech appears to have been Mr. Carney’s farewell address, soon before the end of his governorship of the Bank of Canada. It contained very little that might be construed as self-congratulation about his own work at the central bank; it was more of a tribute to Canada, or at least to some of this country’s better institutions.