Prime Minister Stephen Harper’s hopes of keeping the G20’s focus on debt and deficit targets appear sure to be eclipsed Thursday as world leaders meet in Cannes for meetings that will be dominated by concern over the European Union’s plans for Greece.
The G20 expected the EU debt crisis would have been largely resolved by the time presidents and prime ministers arrived in France, but Greece’s announced intention to hold a referendum over the latest EU rescue plan has revived a sense of crisis.
That means Mr. Harper’s priorities – which he successfully pushed into the Toronto 2010 G20 communiqué – are destined for the backburner this week.
Doug Porter, deputy chief economist for the Bank of Montreal, notes that the primary source of market concern at the moment is slow growth, rather than government deficits.
“Now, without a European plan in place, really talking about almost anything else makes little sense at this point,” he said.
Nonetheless, Mr. Porter said Canada may have some influence this week on matters of financial regulation.
“We have to be realistic in terms of how much weight Canada can really pull here, but at least we are seen as a good example of how to fix a fiscal mess and I think there are certainly some lessons to be learned from Canada’s experience, as well as the relative health of the financial services as a bit of a lesson as well, so we may have a bit more sway and influence than under normal circumstances,” he said.
One Canadian government official acknowledged the “reality” that the primary focus in Cannes will be on the EU, but said there will still be talk of deficit reduction and improving financial-sector regulation. The official argued that the turbulence in markets also shows the need for governments to have solid fiscal plans.
“We do want to see a continued recognition that debt and deficit has to happen, fiscal consolidation in the medium term has to happen,” the official said. “Markets are certainly saying that debt and deficits are a problem and you’d better have a credible plan to get them under control in the medium term.”
Vital Moreira, a socialist member of the European Union Parliament from Portugal who is visiting Ottawa this week for meetings to discuss a Canada-EU trade deal, said there is nonetheless a role for Canada to play in the specific issue of the EU rescue plan.
“I think Canada and the other leading economies and members of G20 have an important role there, not only sharing the … problems that we are facing, but also financially, to participate in the providing of funds that may be necessary to subscribe to the bonds of the European Financial Stability Mechanism,” he said in an interview with Canadian reporters Wednesday.
Mr. Moreira spoke candidly about the surprise decision of Greek Prime Minister George Papandreou to hold a referendum.
“It came as a very unexpected move,” he said. “It’s brought about high turbulence on the markets.… [this]is a high-risk gambit by the Greek government. I think it came at a very unfortunate moment because apparently we were starting to see the lights at the end of the tunnel and all of a sudden everything might be at stake.”