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CORRECTED-UPDATE 3-Canadian finance minister's job appears unsure, markets fret over distraction

(In paragraph 4, corrects name of analyst to Erik Nelson at Wells Fargo from Adam Button at ForexLive)

OTTAWA/TORONTO, Aug 11 (Reuters) - Canadian Finance Minister Bill Morneau’s job appeared uncertain on Tuesday after reports he had clashed with Prime Minister Justin Trudeau, prompting analysts to fret about Ottawa becoming distracted as it tackles the coronavirus crisis.

The Globe and Mail cited unnamed sources as saying Trudeau was uncertain whether Morneau was the right person to handle the recovery. Morneau was unhappy at how much money Trudeau wanted to spend to deal with the outbreak, it added.

Morneau, 57, has been finance minister since the ruling Liberals took power in late 2015.

“To have turnover in such a key role in the middle of an economic crisis ... could rattle investor confidence in Canada and in turn weigh on the Canadian dollar,” said Erik Nelson, a currency strategist at Wells Fargo.

The report was the first public sign of tension inside government over how to handle the pandemic. Canada has provided more than C$212 billion ($159.7 billion) in direct COVID-19 support and nearly 14% of gross domestic product in total support.

Canada’s budget deficit this fiscal year is expected to hit C$343.2 billion, the largest shortfall since World War Two.

Trudeau’s office, asked whether he still had faith in Morneau, said it would respond later. Morneau’s office did not reply to a request for comment.

Morneau is also under pressure over his failure to promptly repay travel expenses covered for him by a charity at the heart of an ethics investigation. Although Morneau apologized, opposition legislators say he must resign.

“The bus has been rolling toward Mr. Morneau for weeks. Market participants understand that he has become a major political liability,” said Karl Schamotta, chief market strategist at Cambridge Global Payments.

But he added: “Rocking the canoe might increase downside risk for the loonie (the Canadian dollar) and for markets more generally. And a distracted government is the last thing the economy needs,” he said.

Potential replacements include Deputy Prime Minister Chrystia Freeland, Foreign Minister Francois-Philippe Champagne and Mark Carney, a former head of both the Bank of Canada and Bank of England, the paper said.

Trudeau is also being probed over possible ethics violation after the charity - which has ties to his family - was chosen to manage a major student grant program. He apologized but denied the charity has received any preferential treatment over the deal, which has been scrapped.

$1=1.3279 Canadian dollars Reporting by David Ljunggren in Ottawa and Fergal Smith in Toronto; Editing by Chizu Nomiyama and Alistair Bell

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