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Canadian Finance Minister Jim Flaherty surrounded by aides after at a press conference at the Taj Mahal hotel in New Delhi, India on a visit to meet economic leaders.
Canadian Finance Minister Jim Flaherty surrounded by aides after at a press conference at the Taj Mahal hotel in New Delhi, India on a visit to meet economic leaders.

Tories launch global fight against bank tax Add to ...

Canada is taking its campaign against a global bank levy on the road, part of an aggressive shift in tactics by the Harper government to kill an initiative that risks becoming a distraction from the Prime Minister's agenda at the G20 summit.

Finance Minister Jim Flaherty, who blocked a push by the U.S. and the European Union to win G20 support of a bank levy last month at meetings in Washington, was on the offensive in New Delhi Monday, trying to win support for Canada's counterproposal to the bank tax, an untested plan that would require financial institutions to sell debt that would convert to easily accessible reserves when funds run low.

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"We have to keep our eye on the ball," said Mr. Flaherty, who rallied support for his stand among G20 finance ministers from emerging markets by characterizing the bank levy as unfair punishment of countries who had no role in causing the financial crisis. "The banks in India performed well, and so did the financial institutions in Canada."

Mr. Flaherty's meetings with his Indian counterparts were only the beginning. Tuesday, five cabinet ministers will make the case for stricter financial regulation and against the bank levy at speeches or press conferences in four cities, including Mr. Flaherty in Mumbai and Trade Minister Peter Van Loan in Washington.

The co-ordinated public relations assault mirrors a tactic the Prime Minister Stephen Harper uses to effect at home, deploying cabinet ministers to several locations at once, creating several mini-events that strengthen the chances of the government's message getting out.

Joining Mr. Flaherty and Mr. Van Loan in the media blitz is Treasury Board President Stockwell Day, scheduled to speak in Shanghai, where he will have a chance to make an impression on the one country that rivals the U.S. and the European Union in economic might.

In Ottawa, Industry Minister Tony Clement and Foreign Affairs Minister Lawrence Canon were scheduled to hold a press conference early Tuesday afternoon to make the government's case on financial regulation to the home crowd.

The Harper government's international lobbying effort represents an escalation in tactics, which until now consisted of speeches, media interviews and the occasional op-ed piece in the business press.

It also shows that Ottawa believes the idea of a global tax still has life, and that the Canadian argument that such a levy unfairly punishes the innocent might not be enough to carry the day when some of the world's most powerful economies are the opponents.

The debate over the bank tax is rooted in the G20 pledge to ensure taxpayers don't pay for future bailouts of financial institutions. While everyone agrees on that issue, the debate is about how to achieve that goal. Most European countries, with the backing of the International Monetary Fund, say this is would best be done by raising money from the banks directly. But to work, a tax would have to be applied broadly. Otherwise, financial institutions could try to avoid the fees by fleeing to non-tax jurisdictions.

Canada's counterproposal is to make banks raise "embedded contingent capital," which Canadian officials argue would ensure taxpayers avoid paying for future bailouts by shifting the burden to shareholders, who would see their existing stake diluted when the contingent bonds were converted to equity.

Mr. Flaherty didn't say how Canada's "contingent capital" idea was received during his meetings with India's finance minister, Pranab Mukherjee, and the country's G20 sherpa Montek Singh Ahluwalia. In academic circles, the concept is coming under greater scrutiny, and some are skeptical.

Among the unknowns is how markets would react when a bank triggered its contingent capital. Rather than strengthen the bank, investors could see the move as a sign of weakness, which could lead to mass selling of the firm's shares or even a run on the bank itself by nervous deposit holders.

But Canada's agenda is bigger than the fighting the bank tax.

As the euro fell to its lowest level in four years amid worries Europe's debt crisis will impede economic growth, Mr. Flaherty talked to Indian officials about the need for fiscal constraint in the G20, echoing the message of a letter Mr. Harper sent to the other 19 leaders in the group on Monday.

In Toronto, leaders will attempt to co-ordinate their domestic economic policies to foster "sustainable" global economic growth, which includes ensuring the expansion in India and other emerging markets makes up for what will be lost in the U.S. and Europe, which must save to constrain massive private and public debts.

Building such a framework is "all the more important given what has evolved in Europe of late, including fiscal consolidation and the clear need for fiscal consolidation to proceed and proceed now," Mr. Flaherty said.

When asked if Europe's woes could spread, Mr. Flaherty said, "Not yet, not that I have seen." But he added: "We have to obviously be cautious and vigilant."

Follow on Twitter: @CarmichaelKevin

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