Mr Carney accused eurozone leaders of “timidity” in their attempts to revive the fortunes of the beleaguered single currency market.
“The currency union has been relatively timid in putting in place the policies and the institutions necessary to deliver sustainable prosperity for its citizens,” he said.
Fiscal union was an essential step for putting the eurozone economy on the path to growth and viability. However, so far, eurozone leaders had shied away from committing to any mechanisms that could transfer fiscal resources throughout the region and, instead, are relying on a combination of structural reforms and aggressive action from the ECB.
“As of this evening, progress on structural reforms in the euro area remains uneven. Cross-border risk-sharing through the financial system has slid backwards. Europe’s leaders do not currently foresee fiscal union as part of monetary union. Such timidity has costs.
“There is only so much that monetary policy can achieve,” he told an audience in Iveagh House for the inaugural Jim Flaherty lecture.
“The €1.1 trillion in quantitative easing announced last week was a positive development and would benefit the wider economy over the medium term,” Mr Carney said.
“Moreover, structural reforms would also make the region more competitive, which would also deliver benefits over the medium term, as would proposals for a capital markets union as well as banking union.”
The eurozone faces huge challenges in the short term, from low levels of nominal growth, a deflationary environment, and high debt levels.
The emphasis on internal devaluations is misguided and risks forcing the eurozone into a debt deflationary spiral, Mr Carney added.
“Internal devaluations simply reallocate demand within the currency union. They do not boost aggregate demand in the euro area as a whole. Put another way, since competitiveness is relative, a solution for some cannot be a solution for all.”
Mr Carney said a fiscal union that would enable the transfer of financial resources from core to periphery countries was needed to stop the eurozone from being “swamped in debt”. He added: “In a time of fatigue it is difficult to do but it is essential.”
Mr Carney is a former governor of the Canadian Central Bank. He shared an Irish background with the former Canadian finance minister, Jim Flaherty, who died last year.
Mr Carney said his friend and mentor was very straight talking and would have been “deeply frustrated” with the response of eurozone leaders to the debt crisis that has wreaked havoc in the region for the past six years.
He urged the eurozone to pursue closer integration.
Finance Minister Michael Noonan, said in an introduction speech that Mr Carney had played an important role in putting Ireland’s debt on a sustainable path.