With debt-laden Greece on the brink of bankruptcy, Finance Minister Jim Flaherty says Canada’s fiscal house is in order and, although we may be "buffeted" by a crisis in Europe, we will survive.
Over the weekend, Greek officials admitted the country only has enough cash to see it through this month, and last week international investors threatened to withhold a bailout cheque of 8 billion euros because Greece was routinely failing to meet austerity measures agreed to in the bailout negotiations.
Over the weekend, in an effort to qualify for the handout, Greece introduced a new property tax.
But despite Greece’s financial woes, and even fears in fiscally sound European countries like Germany that the eurozone is failing, Flaherty said Canada can withstand the storm.
"We’re a relatively small trading nation in the world, so we’re engaged, and if there’s buffeting from outside then we’ll get buffeted. We have before and we will again," Flaherty told reporters Monday after speaking to the Whitby Chamber of Commerce in Ajax, Ont.
"What we can do is make sure our house is strong, that we’re in good order, so we can survive well as we did the last time."
Greece’s problem, Flaherty told the business crowd, is that while it has a plan it is failing to implement it.
"The pressures are always there to spend more money, and it’s easy for politicians to say 'I will spend less money,' but then, of course, they actually have to do it, to implement it, to control their spending, and that’s not so popular as to go ahead and spend more on this, that or the other thing,” he said. "They (Greek officials) have a plan to control deficits and debt, but they have to implement it, and that’s not always popular with the people.
"This is a challenge of political will for some of the governments in Europe."
Indeed, Greek citizens erupted in riots when the government moved to slash public spending in order to avoid defaulting on its debt payments.
The 2008 financial crisis, coupled with successive Greek governments wildly spending beyond their means and misleading other European countries about their spending, led to fears last year that Greece would be unable to meet its debt payments. In May 2010, the European Union agreed to hand over 110 billion euros in bailout loans, if Greece slashed government spending. Another 80 billion euros has since been added to the bailout total.
Liberal MP John McCallum, himself an economist and former minister of national revenue, warned the consequences for Canada could be dire.
Not just because of Greece, he said, but because the effect a worsening situation in that country could have on the global financial system.
"Very large European and British banks have major exposure to countries whose debt is becoming questionable," he said. "What if we have a repeat of the crisis of three years ago where the banks don’t trust each other, don’t want to lend to each other, interest rates go through the roof and the financial system seizes up?" he said.
For the Liberals, the feds should prepare for more global financial instability and delay a series of expenditure cuts that are expected to ultimately achieve $4 billion in annual savings.
"We Liberals are not opposed to expenditure review or cuts, we did it in the mid-90s and again in 2005. But it has to be done at the right time, and at a time when the economy around the whole world is at risk of another financial crisis or going into recession, that is not the right time to do these cuts."
The G20 finance ministers will meet in Washington, D.C., in two weeks, and again in Paris next month.
