Canada's Finance Minister Joe Olive talks during an interview at the G20 Finance Ministers and Central Bank Governors Meeting in the northern Australian city of Cairns Sept. 20.STAFF/Reuters
A "triple-dip" recession in Italy and a feared deflationary spiral are pushing European woes back to the top of global policy makers' worry-list.
European countries must do more to boost the continent's now flat-lining $17-trillion economy, including more fiscal stimulus, Canadian Finance Minister Joe Oliver acknowledged Sunday after a weekend meeting of Group of 20 finance and central bank chiefs in Cairns, Australia.
"We confronted an uncomfortable reality," Mr. Oliver told reporters on a conference call from Sydney. "We still have significant economic challenges ahead of us."
Topping the list, he said, are Europe's "insipid growth," outright recession in countries such as Italy and a continent "perilously close" to deflation.
"What we do not want, of course, is to see Europe enter into a deflationary spiral," Mr. Oliver remarked. "It must be avoided for the good of Europe and the good of the global economy."
With a wary eye on deflation risks, the European Central Bank has slashed its key interest rate twice in the past three months. The most recent move was on Sept. 4, when the bank cut its rate to a record low of 0.05 per cent and unveiled a limited program to spur lending by buying up asset-backed securities.
Some analysts have dubbed the stalling out of the European recovery "the Great Stagnation."
In a marked shift from the fiscal austerity message of previous meetings, Mr. Oliver and other finance ministers are now urging their European counterparts to temporarily open government spigots to get their economies moving again.
"It is critical that we take concrete steps to boost growth and create jobs," Australian Treasurer Joe Hockey, who hosted the meeting, told reporters.
"We will use all levers available, including additional fiscal and monetary policy leverage where appropriate."
Mr. Oliver said countries need to have flexibility to temporarily deviate from their fiscal targets.
"We need to provide some flexibility for some countries to undertake actions and structural changes to get the growth going," he said.
"It's not an ideological approach. It's a pragmatic approach."
But Germany, Europe's leading economy, continues to resist calls for more stimulus spending. insisting that strict budget controls stay in place in the euro zone.
At the meeting, finance ministers from countries that make up 85 per cent of the global economy reaffirmed a pledge to sharply boost global growth by an extra 2 per cent over the next five years through more spending on infrastructure and programs.
The group also expressed concern that low interest rates could lead to a potential increase in financial-market risk, as investors increasingly chase higher yielding, but less safe, investments.
Mr. Oliver described the global recovery as "fragile," and warned that Canada may not be immune if global conditions worsen.
"The world's destiny affects Canada's destiny," he said. "The world's struggles and challenges impact our growth and employment.
"We need the world economy to get back on track to optimize Canada's economic prospects."
The Bank of Canada has forecast that the economy will grow at an annual rate of roughly 2.25 per cent between now and 2016, or significantly more slowly than its pre-recession pace.
Unemployment has been stuck at around 7 per cent for past year.
The U.S. economy is showing signs of getting back on track, but with China slowing and Europe stagnant, global growth is faltering.
In July, the International Monetary Fund downgraded its economic forecast, estimating the world economy will grow 3.4 per cent this year, from an earlier estimate of 3.7 per cent.
The G20 represents the major industrialized and developing countries.
Its members are Canada, the United States, Japan, China, Germany, Britain, France, South Korea, Brazil, Mexico, Russia, Argentina, Australia, India, Indonesia, Italy, Saudi Arabia, South Africa, Turkey and the European Union.