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EU debt crisis threat to Canadian economy: Flaherty

Finance Minister Jim Flaherty speaks to reporters in the foyer following Question Period in the House of Commons on Parliament Hill in Ottawa on Tuesday, June 14, 2011.

Sean Kilpatrick/THE CANADIAN PRESS

The sovereign debt situation in Europe could spread and pose a threat to other economies, says Finance Minister Jim Flaherty.

"There is a real danger of contagion stemming from the situation in Europe," he told a conference of international insurance professionals in Toronto Monday morning.

Mr. Flaherty noted that he has had conversations with European colleagues in the last day to talk about the fiscal situation in Europe and the danger of contagion from the situation in Greece. He is pressing for a speedy resolution of the issue, and has told his counterparts that it's important that the situation is dealt with as expeditiously as possible, he said.

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While the direct exposure that Canadian banks and insurers have to Greece is relatively minor, Mr. Flaherty said the situation has the ability to impact the financial system globally if it's not dealt with. That being said, he added he expects it will be resolved.

At the same time, there continues to be some concern about ongoing weakness in the U.S. housing market, he said.

But Mr. Flaherty suggested that he is now more comfortable with the health of Canadian housing, saying categorically that he is not considering taking any further actions to cool the mortgage market here because there has been some moderation in the housing market. While there are some hot spots, such as the condominium market in Vancouver, those are not enough to prompt another change in mortgage rules, Mr. Flaherty said.

Those comments, in the wake of a recent speech by Bank of Canada Governor Mark Carney in which he expressed some concern about Canadians taking on excessive mortgages, mark a change for the finance minister who has tightened the mortgage market three times in recent years and repeatedly stated that he would consider doing so again.

Mr. Flaherty's recent actions have included cutting the maximum length of insured mortgages, increasing down-payment requirements, and lowering the maximum loan-to-value ratio that's allowed when homeowners refinance their insured mortgages.

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