November 25, 2011 / 5:24 PM / in 6 years

Canada eyes stimulus as Europe crisis spreads

<p>Canada's Finance Minister Jim Flaherty speaks during Question Period in the House of Commons on Parliament Hill in Ottawa November 22, 2011. REUTERS/Chris Wattie</p>

TORONTO (Reuters) - The Canadian government is open to the idea of including additional economic stimulus in its next budget if the European debt crisis threatens to derail the country’s relatively successful recovery.

“We stand ready to respond again in a flexible and pragmatic manner if the economic challenges from beyond our shores begin to threaten jobs and the economy here,” Finance Minister Jim Flaherty said in a speech in Toronto.

But he added a cautionary note that any new stimulus measures will be targeted. The Conservative government will not abandon its goal of eliminating the budget deficit “in the medium term” and will forge ahead with plans to slim down government spending.

“So while we will act as necessary, we will always ensure that any government spending is targeted and effective,” he said.

Flaherty repeated his view that the European sovereign debt and banking crisis is the No. 1 threat to Canada and urged his European colleagues to move aggressively to solve it “in double time”.

Canadian banks are so far not endangered, he said. “We’re comfortable with their exposure being relatively minor with respect to the crisis in Europe.”

In an admission earlier this month that the outlook for star economy in the Group of Seven industrialized nations was looking bleaker, Ottawa extended two jobs-related stimulus measures that were due to expire. It also pushed back by one year the date it plans to eliminate the budget deficit, to 2015-16.

Canada emerged from the world economic crisis in better shape than most of its trading partners, and already by January had recovered all the jobs lost in the recession.

Canada’s cautious banks did not need government bailouts during the 2008-09 recession and the government’s budget deficit is far narrower, at about 1.8 percent of gross domestic product, than is the case in many other countries.

One trouble spot in Canada has been bulging household debt as people have taken advantage of ultra-low interest rates to take out mortgages. After repeated warnings from the Bank of Canada and the government, Flaherty noted there are signs that mortgage debt levels are stabilizing.

“We have seen some significant number of Canadians paying down their household debt, and in particular paying down their mortgages on their own homes. I‘m all for that,” he told reporters after the speech.

Reporting by Claire Sibonney; Writing by Louise Egan; editing by Peter Galloway

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