OTTAWA—The Conference Board of Canada (CBoC) is taking a firm stance on Canada’s position in respect to the ongoing financial crisis in Europe.
According to the CBoC, the euro will likely survive, but Canada should not offer any special financial support to the eurozone and should stay out of the detailed discussions on how to resolve the European financial crisis.
Instead, Canada’s best contribution to the eurozone would be to conclude a free trade deal with the European Union (EU), the organization says.
“Canada can best contribute to an economic recovery by completing the free trade negotiations with the EU, thereby boosting growth potential on both sides of the Atlantic,” CBoC senior vice-president Glen Hodgson said in a statement. “The eurozone needs growth if it is to recover, but there is not yet any apparent, well-defined growth strategy.
“A Canada-EU free-trade agreement would be a leading element of such a growth strategy for the eurozone.”
The CBoC argues that the euro will survive more or less intact, and will not fragment into multiple currencies, but says the resolution will take time and be very painful and costly.
In June, the CBoC published The Endgame for the Euro: Three Unattractive Options, outlining three prospective routes the EU could take during the crisis.
Option one was to muddle through the crisis in a reactive, step-by-step process, which the CBoC says has occurred for the past two and a half years.
The muddle-through approach continues to be the default option, and appears more likely now to continue than it did during the summer.
Option two was for Greece to leave the euro.
Since there is no mechanism in place to push Greece out of the eurozone, the CBoC says the likelihood of this option appears to be diminished.
However, it notes it is very likely that Greece will eventually require significant debt reduction relief from its eurozone partners and will be shut out of financial markets for years.
Greece could also still choose to default on its public debt, leave the eurozone, and restore its own currency at a sharply devalued level to try to improve its competitiveness.
Option three was for Germany to leave the eurozone and restore its own strong currency, perhaps with a few other fiscally solid countries, such as the Netherlands, Finland and Austria.
But despite the high and rising costs of bail-outs, Germany’s deep political commitment to remaining an anchor member of the eurozone has not wavered.
The CBoC gave the third option only a five per cent probably earlier this year, and says it is even less likely now.