IN THE NEWS ~ Carney backs Greek bailout referendum

Published Ottawa Citizen (FINAL), NEWS, Page: A1 Front. Duplicates: Edmonton Journal, The STARPHOENIX (Saskatoon).

Carney backs Greek bailout referendum

'It's imperative that there is broad democratic support,' says Bank of Canada governor

Derek Abma, Postmedia News

   Bank of Canada Governor Mark Carney supports Greek Prime Minister George Papandreou's decision to hold a referendum on a proposed bailout package from its European partners meant to help that country maintain financial stability.

   Carney made the comments during testimony Tuesday to the House of Commons standing committee on finance. This was while stock markets around the globe plunged largely on the uncertainty Papandreou's announcement brings on whether a recent agreement reached by European leaders can adequately deal with out-of-control debt among some members of the European Monetary Union.

   Greece is committed to deep government spending cuts as a condition of the assistance offered.

   "In times of difficult structural adjustment, major fiscal austerity, tough decisions that governments such as the Greek government is contemplating, it is imperative that there is widespread support, broad democratic support for those measures because they will unfold over a period of time," said Carney. "And if it's the judgment of the Greek government that (a referendum) is the best approach to validate that support, we fully respect that," he added.

   Carney was responding to a question from Liberal committee member Ralph Goodale after the central bank boss said he welcomed last week's agreement by European leaders to financially assist Greece and other European countries that are swimming in debt.

   But Carney did not specifically answer Goodale's questions about whether Greece could remain in the eurozone if it turned down the bailout offer and what alternative measures could be taken in the event of a no vote in the referendum.

   Carney kicked off his presentation to the committee by reiterating parts of last week's monetary policy report from the central bank that, among other things, noted how the outlook for the global economy - and in turn Canada's - have deteriorated in recent months.

   Much of this is tied to uncertainty around how European countries will deal with debt levels that have become unsustainable and the effect this is having on financial markets.

   Carney repeated the bank's view that the eurozone will likely have a "brief recession" starting this year.

   The central bank's recent report downgraded expectations for economic growth in Canada this year to 2.1 per cent from 2.8 per cent, and 1.9 per cent next year from 2.6 per cent.

   Asked Tuesday to react to Greece's referendum, Finance Minister Jim Flaherty said that what the global economy needs now is for Greece to get its house in order without delay.

   "I encourage all the parties to get on with it," he said, pointing to the effect news of the referendum had on jittery markets.

   Politicians of different political stripes on the finance committee tried to prompt Carney into taking a definitive position on whether the Canadian government should provide more stimulus spending to suport the country's economy.

   Conservative MP Shelly Glover asked Carney to say categorically that Europe's expected recession is not coming as a result of a lack of stimulus spending there.

   "Anyone who leaves this room stating that the recession in Europe is likely caused by government not spending in stimulus ways is grossly misinformed and not understanding this situation. Am I correct?" she asked Carney.

   He replied: "I would say that there are deeper fundamental causes of the situation in Europe that have built up over a number of years that can only be resolved over a number of years."

   New Democrat Peter Julian asked Carney about the merits of more government stimulus spending in Canada to spark the economy.

   Carney told Julian: "Fiscal decisions are for the minister of finance, so we'll defer to him on those and not provide advice."

   However, Carney added: "We obviously want to avoid being in the extreme situation of European governments where the scale of fiscal austerity that is being required in a large number of countries is now materially affecting the growth outlook in these countries."

Published | Publié: 2011-11-02
Received | Reçu: 2011-11-02 5:45 AM


Europe's lesson: Value of fiscal health


   New Democrat MP Peter Julian zeroed in quickly Tuesday on a few key lines of testimony from Bank of Canada Governor Mark Carney at the House of Commons Standing Committee on Finance.

   Carney and the bank's economists believe Europe will experience a recession, and that one of the chief contributing factors will be European-wide austerity programs.

    In other words, Europe's economic problems are a result of their own governments' decisions to turn off the economic stimulus taps and focus instead on dealing with monster-sized deficits.

    For Julian and the NDP, this is a lesson for Canada and Prime Minister Stephen Harper.

    Canada, in the NDP's view, should not be ending its stimulus program, but should instead continue to run huge deficits in the name of putting people back to work and to keep our economy moving forward.

    After all, no less an eminence than the Bank of Canada governor had just said that a lack of stimulus spending was causing Europe's recession.

    But the NDP would be mistaken to think that what's good for the European goose is good for the Canadian gander.

    Canada is not Europe.

    And if there is a lesson for Canada from the European catastrophe, it is that governments should keep themselves in good fiscal shape for the rainy day when running deficits and spending our way to job creation is unavoidable.


    The NDP's heart is in the right place on this one, in that the top priority for a government anywhere should be to make sure as many Canadians as possible have a good job.

    And while the Conservatives also suggest that this, too, is the goal of their so-called "Economic Action Plan," one also gets the feeling, particularly when you listen to Finance Minister Jim Flaherty, that a healthy federal balance sheet is a more important goal.

    But of course, as we're seeing now in Europe, a government that does not have its fiscal house in order is powerless to help its populace when it most needs help, usually in a recession.

    So Flaherty, for now, is right.


    Since Canada is not in a recession and, assuming our good luck holds, will not be in a recession for the foreseeable future, it is prudent government policy to do what we can to clean up the federal balance sheet.

    After all, the Canadian economy, with some help from government stimulus programs, has created more than 650,000 jobs since July 2009.

    As Harper has been boasting on the international circuit, "Canada is one of only two G-8 countries that have more people working now than before the 2008 recession."

    Europe, on the other hand, has no choice now but to attend to its governments' balance sheet, its punishment for years of over-spending and too-rich government programs when its economies were healthier.

    And both Flaherty and Prime Minister Stephen Harper have promised to be "flexible" should our economy take a turn for the worse.

    We don't, though, quite know what "flexible" means.

    Another round of stimulus spending? Make it easier to get employment insurance for a longer period? More tax breaks?

    But at least Canada, unlike Europe, is in the enviable position of being able to afford such "flexibility" should it be required.

    And that is because, for this budget year at least, putting the federal fiscal house in order is Ottawa's top priority.