MANSBRIDGE: How vulnerable is Canada in the midst of all this?
HARPER: Peter, you know, we are not vulnerable as even a first or second wave. Our exposure, both our banking exposure and sovereign exposure, to troubled European economies, to troubled European financial institutions, is not high. However, we are exposed to others that are exposed to others.
MANSBRIDGE: I'm lost, what does that mean? Does that mean that eventually the Canadian banking system or parts of it are exposed?
HARPER: Well, just to be frank with the Canadian public here, the same thing we saw in ‘08, ‘09, although our banking system remains the strongest in the world, universally recognized as such, although were not directly exposed to the troubled parts of the global banking system or the global sovereign crisis, the fact of the matter is that we are exposed to others who are themselves exposed to others who are themselves exposed to those problems. And so, if the thing gets big enough it will affect everybody, it's going to affect everyone potentially through the financial sector and certainly if the European recession gets deep enough it will affect everybody. The fact of the matter Peter, is that I am told already by my counterparts around the world that it has already been affecting most other economies. North America has been relatively immune until this point in time but if it gets much deeper it will affect all of us. It is essential it is dealt with. We do have contingencies in place to minimize the impact on us as we did in ‘08-‘09.
MANSBRIDGE: – Like what?
HARPER: Well, there are various things that can be done certainly by Bank of Canada and the financial sector to preserve the health and liquidity of the Canadian financial system. But that all said, if things get bad enough in global economy, we are part of the global economy, we will be affected which is why we work diligently with our partners through myself, with the minister of finance, through the central bank governor, to try and identify solutions for some of our partners.
MANSBRIDGE: You have a calm look on your face but you sound worried.
HARPER: I am concerned. Look Peter ever since mid ‘08 I have been constantly worried. We remind Canadians of two things constantly: that Canada is doing better, much better, and our mid-to long-term fundamentals are much sounder than virtually the rest of the developed world. At the same time, we are in a global economy that has been recovering and that recovery is very fragile. I keep saying that. I think sometimes people think when you say things often enough, it's just a mantra. It's not just a mantra.
MANSBRIDGE: It sounds like it's more fragile now...?
HARPER: We are in a fragile situation, it is more fragile now. And we are getting increasingly to the stage where short term solutions are not going to be sufficient.
MANSBRIDGE: And some of those short term solutions, perhaps they weren't short term when they were first proposed, but the signals seem to be confusing on this. In the last week or two we have heard different leaders – not just from Europe -- but suggesting that perhaps now is time for both austerity and growth at the same time. Listen, I'm not an economist, you are – how can you do that?
HARPER: I don't think there is a contradiction there at all Peter. How I would phrase it is that fiscal discipline and growth are not only both necessary, they are both essential. If you take those two phrases and say by fiscal discipline you mean cutting, and by growth you mean spending, then yes they are incompatible. But I don't think it's that simple of equation. I do think that all economies need a sense of fiscal discipline especially over the midterm and if you are in the middle of a debt crisis you can't borrow your way out of a debt crisis. That's logically impossible. But at the same time you do need, as we are doing in Canada, you need to undertake a range of measures, not just fiscal discipline, to ensure growth. We have an ambitious trade agenda, we are revamping our science and technology policies to get better results, as you know we're doing labor market reforms, were doing regulatory reforms. These are all things that need to be done to increase the growth capacity of our economy. Where I occasionally get troubled when I hear some leaders who are in the midst of, let's face it – very, very difficult fiscal and public opinion situations, things that are nowhere close to the kind of situation we experience, when I hear some leaders talking that way, and they say growth, it sounds like they are looking for some easy way to deal with the problem when in fact the changes you have to make in terms of growth policies are often politically very challenging as well.
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