MONTREAL (AFP) - Europe faces a "decade of stagnation" if it does not move on momentous reforms to put its fiscal house back in order, Bank of Canada Governor Mark Carney warned Tuesday.

"Europe remains in recession, with economic activity constrained by fiscal austerity, low confidence and tight credit conditions," he said in a speech to the Montreal board of trade.

"Deep challenges persist in its financial system. Without sustained and significant reforms, a decade of stagnation threatens."

In his final speech as Canada's central bank governor before taking over the reins at the Bank of England on July 1, Mr Carney urged European policymakers to "draw lessons from Japan on the dangers of half measures."

Japan has struggled for more than two decades after a major financial crisis. It is now embarked on what Carney described as a "bold policy experiment" to fire up its economy.

Otherwise Mr Carney was vague on specifics, except to point out that there are currently few institutional mechanisms within the Economic and Monetary Union (EMU) to offset shocks like the one that hit Spain when inflows to its banking system and sizzling real estate market dried up, and its economy collapsed.

He made no mention of Britain's monetary policies.