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.
Turning his attention specifically to Greece, he said: “They have a plan to control deficits and debt. They have to implement it and as I said earlier, that’s not always popular with the people.”
Canada, like Germany, appears fiscally and economically stronger than many of its G7 partners. The Canadian government aims to eliminate its relatively small C$34 billion ($34 billion) deficit by 2014-15. It also expects moderate growth in the rest of this year, following an unexpected downturn in the second quarter.
Flaherty repeated that Ottawa would only reconsider its deficit-reduction plans if there were a dramatic shock to the economy, but that is not expected.
“As I said before, if we were to face external shocks from the EU or the United States or elsewhere ... if something dramatic were to happen, of course we would be pragmatic in our response ... we’ve demonstrated that before and what has been done before can be done again.”
The Canadian dollar fell on Monday to a 7-1/2 month low against the U.S. dollar, which Flaherty said was a reflection of the “challenging times” and market volatility.
He urged the private sector, which he said was sitting on a pile of cash, to “step up to the plate” and invest to create jobs and boost the economy.
Reporting by Alastair Sharp; writing by Louise Egan and Randall Palmer; editing by Rob Wilson