If European countries are not prepared to bail out fellow euro zone members, maybe they should just abandon the whole concept of a common currency, Canadian Finance Minister Jim Flaherty said on Monday in some of his most direct remarks on the issue.
“This is a time of crisis in the euro zone. The whole future of the euro zone is up for grabs, and this is very important for many of the euro zone member countries, given the history of Europe in the last 100 years or so,” Flaherty told CTV television.
“So they have to show courage. They have to do the right thing, use some of their taxpayers’ money to bail out some of the weaker members of the euro zone – or start moving away from the euro zone and just say this was an experiment that has not worked.”
Flaherty, who has been a harsh critic of what he calls European ‘incrementalism,’ also predicted a disorderly restructuring of the euro zone if Greek voters reject their country’s recent bailout.
“If the voters of Greece reject the deal that was signed that involves austerity for the Greek government, which doesn’t exist right now, then they will be demonstrating a choice,” he said in a separate interview with CBC television.
“And that choice to me means that there would have to be some restructuring of the euro zone. We don’t exactly know how that can be accomplished. It’s certain to be disorderly. And that’s not good for markets. It’s not good for the banking system around the world.”
He said it was not clear to him that the Spanish and Italian governments would “be able to manage what needs to be done given the unwillingness of many voters to go along with that kind of economic reform.”
Canada’s banks, budget and economy came through the 2007-09 financial crisis in better shape than those of most other major developed countries, and Flaherty has often been blunt in urging swift and comprehensive action by Europe.
“What we see is incrementalism in the European system that is ineffective,” Flaherty told an earlier news conference held to promote the Conservative government’s budget implementation bill.
“This serious issue in Europe has gone on for several years now. The situation has not improved significantly. Many of the banks remain under-capitalized. The sovereign indebtedness situation in a number of the European countries remains dire,” he added.
“This has banking consequences, and when we have banking consequences, it begins to affect the rest of the world.”
He said that while Canadian banks have relatively small exposure to Europe, he was concerned about the fallout to financial systems from the uncertain situation in Greece and a few other euro zone countries.
Flaherty said he has watched the financial crisis proceed from one European country to the next and said it was “not a healthy way to approach a challenge like this.”
Asked whether the International Monetary Fund (IMF) should stop its European bailouts, Flaherty said: “There’s clearly a very major question for the relatively wealthy countries of the euro zone about whether they are prepared to use their taxpayers’ money to assist fellow members of the euro zone.”
He said fixing the problems would be a major challenge politically in Europe, “but quite frankly the Americans did it in the fall of 2008 and early 2009”.
“We are not supportive of putting additional resources into the IMF so that that money can be used to bail out countries in Europe that can deal with their own challenge,” he said.
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