Prime Minister Stephen Harper says Europe has so far avoided a "catastrophic event" that could throw the global markets into turmoil, but he said a "broader game plan" is needed to deal with the economic woes that are plaguing the Continent.
"Although our European friends have done a great job of avoiding a catastrophic event over the past four years, the fact is that we are now four years into this crisis and we do not have definitive solutions," Harper said during an interview with CBC's chief correspondent Peter Mansbridge.
Speaking from London, where he attended the Queen's Diamond Jubilee celebrations, Harper noted that many European countries are struggling with recession, sovereign debt crises and banking-sector woes.
The Bank of Canada said Tuesday that those problems have worsened in the past few weeks — so much so that they have prompted a "sharp deterioration" in global financial conditions. The latest crisis concerns the solvency of European banks, particularly those in Spain, but a Greek exit from the euro-zone following mid-June elections also looms as a potential shock.
"I do think in a sense, here, I don't want to sound too alarmist, but we are kind of running out of runway here," Harper said Monday. "And in terms of structure of the euro-zone and in terms of addressing some of these problems, we do need to see the broader game plan."
"We just can't say, 'Let's wait until the Greek election.' We cannot have a Greek election determining the future of the global economy. That's not fair to anybody."
When asked how much room is on the runway, Harper said there is "still some room" but "we just can't constantly deal with short-term problems — we've actually got to have a plan to make this a stable situation."
As Europe works to contain the crisis, the structure of the eurozone and its central institution must be subject to serious examination, the prime minister said.
"In a time of crisis, to sustain the euro they have to do a much bigger job of integration than they have done until this point," he said.
"The euro in its present form will change," he said. "Hopefully it will be changed because leaders recognize changes have to be made and act in concert to do that — or the alternative will be it will come apart one country at a time, and that would be very bad for everybody."
The euro traded lower Tuesday as traders reacted to a communiqué after a conference call among finance ministers of the world's seven wealthiest economies focused on trying to find a way out of Europe's debt crisis.
Harper said Canada's exposure to troubled European economies and financial institutions "is not high," but that Canada is part of a global economy, and if things get "bad enough" Canada will feel it.
He didn't offer specifics, but said Canada has contingencies in place, noting that the Bank of Canada and the financial sector could make moves to minimize the effects of a crisis and "preserve the health and liquidity of the Canadian financial system" if needed.
Economists say the most immediate result of European contagion would be through a reduction in global demand for Canadian exports, including oil, and a fall in commodity prices. An accompanying stock market plunge would sap wealth from Canadian households and a credit squeeze would also slow economic activity.
