OTTAWA—Prime Minister Stephen Harper is warning that Europe is running out of time to fix its debt problems, but his government has prepared “contingency plans” if Canada is forced to contend with a second global recession.
The frank assessment came in an interview Harper gave CBC’s The National while attending the Queen’s Diamond Jubilee celebrations in London.
At one point during the interview, the prime minister admitted that not only is he worried about Europe’s financial future, he has been since 2008.
The Bank of Canada said Europe’s problems have worsened in the past few weeks—so much so that they have prompted a “sharp deterioration” in global financial conditions. The latest crisis concerns the solvency of European banks, particularly those in Spain, but a Greek exit from the eurozone following mid-June elections also looms as a potential shock.
“I don’t want to sound too alarmist, but we are kind of running out of runway here … I am told already by my counterparts around the world that it has already been affecting most other economies,” Harper said of the duration of Europe’s problems.
“We just can’t say, ‘Let’s wait until the Greek election.’ We cannot have a Greek election determining the future of the global economy, that’s not fair to anybody.”
Harper described the economic recovery, even in Canada, as fragile and said he is worried that short term solutions of the kind Europe has tried so far are not going to be sufficient.
North America has been relatively immune from the fallout of Europe until this point, “but if it gets much deeper it will affect us all,” he warned.
He was not specific, but suggested the measures enacted during a second recession would resemble those taken during the liquidity crunch.
“If we found ourselves in catastrophic situations as we did in 2008 and 2009, (there) would be additional things we would have to do,” he said.
Earlier this week, Finance Minister Jim Flaherty also suggested the government would return to stimulus if a recession occurred. He pointed out that unlike many advanced countries, Canada’s finances are in sufficiently good shape to afford new spending.
Economists say the most immediate impact of European contagion would be through a reduction in global demand for Canadian exports, including oil, and a fall in commodity prices. An accompanying stock market plunge would sap wealth from Canadian households and a credit squeeze would slow economic activity.