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Finance Minister Jim Flaherty reacts while listening to a question from a member of the media in Toronto on Thursday, February 23, 2012. (Pawel Dwulit/The Canadian Press/Pawel Dwulit/The Canadian Press)
Finance Minister Jim Flaherty reacts while listening to a question from a member of the media in Toronto on Thursday, February 23, 2012. (Pawel Dwulit/The Canadian Press/Pawel Dwulit/The Canadian Press)

Bank of Nova Scotia backs Canada's opposition to IMF boost Add to ...

Richard Waugh, chief executive of Bank of Nova Scotia and a prominent figure in global financial circles, is backing Canada’s hard line against an international rescue of Europe, highlighting the contentiousness of a debate that will dominate a Group of 20 meeting this weekend.

Mr. Waugh made the comments in an interview as finance ministers and central bankers from the world’s leading economies were arriving in Mexico City for their first gathering of 2012.

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The official schedule begins with dinner Saturday at a towering luxury hotel in the Mexican capital’s ritziest district, when public sparring over a request from the International Monetary Fund for a $500-billion increase to its crisis-fighting war chest will go behind closed doors.

Finance Minister Jim Flaherty has been a vocal opponent of a boost for the IMF, which the Washington-based fund says it needs to ensure it has access to enough cash to guard against a worst-case scenario of a series of sovereign defaults triggered by the European debt crisis.

He reinforced Canada’s opposition Saturday, telling reporters soon after his arrival in Mexico that the countries that share the euro must put forward a comprehensive plan that no only deals with near-term issues such as the stability of Greece, but charts a path out of recession.

“They need to come up with their own plan before they ask the rest of the world to even consider” contributing to European stability through an increase of IMF resources, Mr. Flaherty told reporters. “It’s premature for them to ask that question.”

The opposition of Canada, the United States and others is impeding a resolution of the European debt crisis, which is feeding uncertainty about the prospects for global economic growth and roiling financial markets. Despite that, Mr. Waugh, who runs the Canadian bank that does business in more countries than any other, said he saw no need for the IMF and the non-G20 countries to deepen their financial exposure to Europe.

“European countries have enough to settle the contagion issues,” Mr. Waugh said in an interview Friday in Mexico City, where he is attending a conference hosted by the International Institute of International Finance. “There is a lot of money in Germany; there is a lot of money in other northern European countries. I don’t think it’s an IMF issue. It’s a euro-zone issue.”

A lack of serious pressure from the financial community to agree to an increase in IMF resources helps explain why countries remain split on the G20’s role in Europe three months after leaders failed to reach an agreement at the November summit in Cannes, France.

There was a signal Saturday that Mexican President Felipe Calderon wants to avoid a similar outcome during his presidency of the G20.

Mr. Calderon has no direct involvement in the weekend meeting of economic officials, yet he summoned some of the key players to meet with him Saturday, according to a person familiar with the meeting. Mr. Flaherty and Bank of Canada Governor Mark Carney will attend, as will U.S. Treasury Secretary Timothy Geithner and IMF managing director Christine Lagarde.

Mr. Flaherty said he didn’t know what the Mexican President wanted to talk about at the meeting, which was hastily arranged late Friday. “I’ll find out at lunch, I guess,” he said.

Members of the European Union way they will respond to the IMF request for resources with a combined sum of about $200-billion (U.S.). The European members of the G20 will push their allies to make up the difference this weekend in Mexico City.

But the best that can be expected at this point appears to be a verbal pledge for help in the future. “I expect no decision at the G20 summit on boosting the IMF's resources,” said Jens Weidmann, head of Germany's central bank and a European Central Bank governing council member, according to a report by Reuters.

Other non-European G20 countries are less strident in their opposition to putting up money to help settle the European debt crisis than are the United States and Canada. Nations such as Japan and Britain have indicated they would contribute to the IMF if Europe increases the size of its own financial backstop.

Angel Gurria, the head of the Organization for Economic Co-operation and Development, said Saturday that such a financial firewall should be the equivalent of at least $1-trillion. European countries are debating creating a bailout fund worth between $500-billion and $750-billion.

“We have to build the mother of all firewalls,” Mr. Gurria, a former Mexican finance minister, told the conference. “The bigger it is, the less likely you will have to use it.”

Mr. Flaherty also said he thinks Europe’s financial backstop should be in the range of $1-trillion.

Most European countries have indicated they are willing to do it, with the notable exception of Germany, the region’s biggest economy. Mr. Flaherty said he will be meeting with his German counterpart, Wolfgang Schaeuble, before the official meetings begin.

“It’s important the euro zone pulls together. Germany has a leadership role in that,” Mr. Flaherty said. “I do want to encourage Germany to take that leadership role very seriously and come up with an overall euro-zone plan.”

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