Flaherty urges eurozone countries to act

By Jason Fekete, Postmedia News

OTTAWA — Finance Minister Jim Flaherty is urging eurozone countries to finally swallow the tough fiscal medicine that’s necessary to avoid financial catastrophe and return some stability to the global economy.
Flaherty is in Paris for this weekend’s meetings of G20 finance ministers and central bank governors, and he has got a blunt message for them: it’s time for Europe to live up to its promises and act decisively on fiscal reforms before the world slips back into recession.
While he pleads for European countries to get their financial houses in order, Flaherty also said he sympathizes with protesters in the Occupy Wall Street movement who are searching for more equitable income distribution.
Flaherty and Prime Minister Stephen Harper have been on a months-long campaign urging European countries to resolve their sovereign debt and banking system issues, and to implement “clear and credible” debt- and deficit-reduction plans.
Speaking to reporters Thursday before jetting to Paris for the G20 talks, Flaherty said the immediate concern for finance ministers and central bank governors is the deteriorating financial situation in Europe — including Greece potentially defaulting on its debt — and the general economic slowdown across the globe.
Canada will be looking for G20 members to develop a plan for sustainable, balanced economic growth over the midterm, he said.
“We have heard a lot of promises from eurozone countries, but actions to date have fallen short of what is needed,” Flaherty said. “It is critical that Europe deliver on a comprehensive package of measures that will address their sovereign debt and banking issues.”
Flaherty said there’s likely a need to increase the flexibility of the European Financial Stability Facility, a fund created as part of the overall 750-billion euro ($1.1-trillion Cdn) European bailout package.
Markets continue to reflect investor uncertainty, Flaherty said, and there’s a need for European countries to adopt immediate and decisive actions to restore global confidence.
He acknowledged the decisions facing eurozone countries are not easy, but said he expects governments to make the difficult choices necessary.
“Extraordinary circumstances require extraordinary actions,” he added.
The Paris talks are a prelude to a European Union meeting later this month and the G20 summit in Cannes, France, in early November.
Leaders from EU countries delayed their emergency meeting until Oct. 23 so they can develop a strategy to deal with the eurozone’s debt crisis, including a possible final plan for a Greek bailout and recapitalizing the banking sector.
The failure and subsequent partial nationalization of Franco-Belgian bank Dexia may have been the jolt that European leaders needed to put their financial institutions on more stable footing, argue observers.
“They’ve finally woken up,” said Avery Shenfeld, chief economist with CIBC World Markets.
“They’re not in denial now. They have enough (European) domestic pressure to get on with the job.”
Finance ministers and central bankers will prepare an action plan for strong, sustainable growth that the leaders of G20 countries can debate when they meet in Cannes in a few weeks.
Canada also wants countries with fixed exchange rates to implement measures that allow their currencies to appreciate, Flaherty said, specifically noting China’s “limited flexibility” on the issue.
Economists believe the Harper government’s tough talk with Europe is about all Canada can do to spur the eurozone into action and prevent a deeper economic slump from spreading across the globe.
“Given that Canadians can really suffer from any type of crisis . . . it’s certainly a fair game from Canada to at least try to play that role, of suggesting gentle pressure and trying to get things improved,” said Jacques Marcil, a senior economist with TD Economics.
“We don’t have any other type of weight of modifying what’s going on out there.”
Marcil said Flaherty’s message might be directed to European leaders but could be meant just as much for Canadian consumption because instability on the other side of the Atlantic Ocean is eroding confidence for investors and families in Canada.
Opposition parties in Canada, however, say the Harper government is ignoring obvious economic signs at home.
The NDP and Liberals are calling on the Conservatives to introduce a jobs plan to get Canadians back to work, including spending potentially billions of dollars on a new infrastructure stimulus package.
Flaherty also offered his thoughts on the Occupy Wall Street movement and associated spinoffs springing up across Canada, saying he recognizes income distribution is important and that a very small number of people have very large incomes.
There’s mounting concern about a lack of opportunities for the younger generation — particularly in the United States — and it’s incumbent upon governments to ensure youth are able to capitalize on their education and find good jobs, he said.
“I can understand some legitimate frustration arising out of that,” Flaherty said, when queried on the matter.
The prime minister, meanwhile, is also speaking out on the need for Europe and the G20 to deliver “immediate and decisive” action to contain what he says is an economic crisis that’s threatening global growth.
In a column published in Thursday’s Globe and Mail newspaper, Harper takes European nations and the group representing the world’s major economies to task for not stemming a renewed threat to economic stability that he says began as a sovereign-debt crisis in small European countries.
“We cannot afford any more missed opportunities,” Harper writes. “To be clear, the crisis could have been contained. Instead, it grew.
“The good news is that this crisis can still be contained and reversed.”
Setting his sights next on the G20, Harper says the world body has an important role to play in righting the world’s teetering financial ship.
He urges members to follow through with the concrete debt- and deficit-reduction plans they committed to at last year’s summit in Toronto.
“The choices that must be made in Europe and elsewhere are not easy,” Harper writes.
“Yet, if not made, we will do a great disservice to all nations. A slow response to the recent crisis has allowed it to spread, but political will, decisiveness and a clear plan can resolve it, if we act now.”
jfekete@postmedia.com

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