Bank of Canada sounds alarm on growing deficits

Sun Apr 25, 2010 12:02am EDT
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By Louise Egan

WASHINGTON (Reuters) - Bank of Canada Governor Mark Carney warned on Saturday of the need to tackle growing fiscal deficits around the world, saying some people underestimate the scale of action needed to bring public finances under control.

Carney, speaking to reporters following G20 and IMF meetings in Washington, said the Greek debt crisis had served as a stark reminder to policy makers of the dangers inherent in their massive, globally coordinated stimulus plans, widely credited with preventing a depression.

The Canadian economy could take a hit if other countries were forced to make bigger-than-expected fiscal adjustments or implement exit strategies sooner than anticipated, he said.

"That would have a knock-on effect on demand in our country," he said.

"What we're seeing with Greece, and we've been seeing it in the last few weeks, are the indications the limits of fiscal stimulus depend importantly on the initial conditions countries had when they embarked on programs," he said.

Both Carney and Finance Minister Jim Flaherty called on governments to present "credible" exit strategies to the world.

"There are substantial fiscal consolidations that are required in a very, very large number of countries," Carney said. "I mean, we've seen warlike spending in peacetime and its going to take concerted effort over a number of years to bring budgets back to a sustainable level."

He said anyone feeling complacent about averting an even greater economic crisis "hasn't appreciated the scale of what was done" to achieve that.   Continued...

<p>Bank of Canada Governor Mark Carney speaks during a news conference upon the release of the Monetary Policy Report in Ottawa April 22, 2010. REUTERS/Chris Wattie</p>