Political will key to restoring confidence: Canada

Mon Sep 12, 2011 1:21pm EDT
 
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By Alastair Sharp

AJAX, Ontario (Reuters) - Greece and other advanced economies need the political will to implement unpopular budget cuts, Canada said on Monday, comparing today's lack of market confidence to 2008 after Lehman Brothers bank collapsed.

Flaherty said that, in order to restore global confidence, Greece has to follow through on plans to reduce its deficits and debt, and he urged other European countries as well as the United States to do the same, even if it costs politicians votes.

Speaking to a business audience, Flaherty reminisced about the autumn of 2008 when global finance leaders, driven by a sense of urgency after the demise of Lehman, tore up their prepared communique, drafted a five-point action plan that vowed to prevent other banks from failing.

"That was an important turning point in the financial crisis of 2008 and 2009 in terms of providing confidence and stability, and that is our role, it seems to me, this time around as well," Flaherty said.

"The circumstances are not the same, the causes are not the same, but the lack of confidence is similar."

Flaherty was speaking as global markets fell on fears of a sovereign debt default by Greece. Finance ministers and central bank governors from the Group of Seven industrialized nations met in France on Friday but failed to agree on any concerted action to stem the European debt crisis.

Flaherty appeared to lay part of the blame on political sensitivities.

"There is a need for political will to maintain sound fiscal policy. That sounds like an obvious thing ... but the pressures are always there to spend more money. And it's easy for politicians to say, 'I will spend less money,' but then of course they actually have to do it," he said.   Continued...

 
<p>Canada's Finance Minister Jim Flaherty prepares to testify before the House of Commons finance committee on Parliament Hill in Ottawa August 19, 2011. REUTERS/Chris Wattie</p>