Europe's debt crisis is worse than it looks and Canada won't be immune to the fallout if Wednesday's summit meeting of European leaders doesn't produce a viable financial rescue package, warns B.C. Finance Minister Kevin Falcon.
Despite B.C.'s inexplicable employment growth September, Mr. Falcon returned from a European bond tour last week with gloomy warnings that B.C. will be fortunate to meet his lowball economic growth projections for the province this year.
"What is happening in Europe is a slow-motion train wreck," Mr. Falcon told reporters Monday.
"The speed at which it is being dealt with is not sufficient at all to give any kind of comfort to investors around the world and that of course creates its own risks - the risk of contagion in particularly where, if not dealt with properly, that financial risk will spread through the financial economies of the world and impact Canada."
Mr. Falcon's five-city tour was set up to tout B.C. bonds and to attract capital for major capital projects and private-sector opportunities. Even as a sub-national government, Mr. Falcon said interest in B.C., with its triple-A credit rating, is strong right now.
As he met with bankers and investors in France, Germany, Switzerland and England, the B.C. finance minister found himself with a front-row seat on a unfolding crisis. A French bank failed while he was there, while both Italy and Spain saw their credit ratings downgraded during his short visit. The big question among nervous bankers was just how much the Greek debt will have to discounted.
But while Mr. Falcon was zipping around Zurich and London making his case for B.C. as a safe harbour for investment funds, he received some unexpected good news: The province's unemployment rate fell and the number of jobs in B.C. shattered a previous record in July 2008.
Mr. Falcon said he couldn't explain the jump - accounting for roughly half of the country's job growth in September.
"We have the highest level of employment in British Columbia that we've ever had in history. I frankly don't know how long that can continue when the world is being buffeted by what is going on in Europe and the U.S."
He stressed that B.C. and Canada are well-positioned to manage the potential fall-out, because Canadian banks don't have much exposure to a major write-down of Greek debt.
But he said the danger of a panic - akin to the one that followed the collapse of Lehmann Bros. in 2008 - is very real.
"I hope they will solve their problems in Europe in a way that doesn't create market panic," he said. "We probably are going to be (buffeted), it's a question of how much."
B.C.'s brightest economic spot has been growth in exports to Asia, and Mr. Falcon was talking up the fact that the province is less exposed to the U.S. downturn than other provinces.
But even China's economy is showing signs of slowing down. Mr. Falcon said there is still room to grow B.C.'s exports in Asia, but the trend is worrisome.
"We think that we can continue to grow (the export markets) even in a slowing Asian economy," he said. "But we have to be very aggressive."