Finance Minister Jim Flaherty. (Chris Roussakis/QMI Agency)
OTTAWA – Finance Minister Jim Flaherty will meet in Tokyo next week with central bank governors and finance ministers from around the world and and will let that group know in no uncertain terms what Canadians expect to be at the top of the agenda.
“Europe has to be No. 1 because it’s the clear and present danger and remains that,” Flaherty said Wednesday outside the House of Commons.
To repeat: Europe is a clear and present danger. That is a stark and ominous warning.
And Flaherty knows, as does his boss Prime Minister Stephen Harper, as well as most of the business community in Canada, that a meltdown in Europe will surely scorch Canada’s economy and prosperity.
We already have enough economic problems on our own. On Wednesday, BMO Capital Markets economist Doug Porter said the NHL strike is likely to take a $1.8-billion cut out of our gross domestic product (GDP) this year.
But that would be small potatoes compared to the world of hurt we’ll feel if Europe cannot put its fiscal house in order.
“There’s no question all of us in the Western world are worried about Europe and what’s going on so we’re watching carefully and monitoring.”
Flaherty’s officials are now crunching numbers to determine how different outcomes in Europe could affect Canada. Those numbers will soon be tabled in the House of Commons in his annual fall fiscal updated.
“Things have not gotten better in Europe because of the lack of action,” Flaherty said. He did acknowledge some limited positive action by the European Central Bank.
“But the fact that we still have undercapitalized banks in Europe and that we have issues with respect to sovereign indebtedness, those facts haven’t changed.”
Flaherty’s dire description of the situation in Europe came on the 25th anniversary of the Canada-U.S. free-trade agreement, an agreement that is now widely conceded to have generated significant economic benefit to Canada.
Canada is hopeful of signing a similarly comprehensive trade agreement with Europe, a monster market that holds tremendous promise for Canadian prosperity.
But because Canada depends so heavily for its prosperity on international trade, the financial health of our largest trading partners – the Europe and the U.S., in particular – are of vital interest to all in Canada.
Europe is the “clear and present danger.” But as Harper, himself, said a few weeks ago in Vancouver, the greater long-term threat may be the apparent inability of lawmakers in Washington to come to grips with dire financial straits of America’s federal government. Many are now talking of a fast approaching “fiscal cliff” for the U.S. federal government.
Flaherty, like many Canadians, has been closely watching the campaign back-and-forth between Democrats and Republicans. Is he seeing signs that the next president, regardless of who it is, can break the “political deadlock” there with some solutions to make sure America does not fall over the cliff?
“Yes. I think there are enough members of the budget committee in the current Congress — because it will be the current Congress that has to deal with it after the election — who totally understand the situation,” Flaherty said.
“Whoever the president-elect is will have to show leadership on the issue. This must be dealt with. If it’s not dealt with, the effect on U.S. GDP will be very significant and that, of course, directly affects Canada.”