The ongoing debt woes in Greece could threaten the economic recovery of Canada and the world if the implications of the crisis are not fully considered, Bank of Canada governor Mark Carney (foto) said Thursday.
Speaking to a Senate committee Thursday, Carney said although he does not believe that the economic woes of Greece and other southern European countries will lead to another recession, they do have the potential to stall the economy.
And if the markets react to Greece’s need for debt by making borrowing more expensive, Canada’s growth will be affected, Carney said.
“The situation is serious,” he said.
If the appropriate steps are not taken, he added, “one can expect an increase in longer-term interest rates on a global level.”
“Canada’s fiscal position is among the best, (so) we will do better than others, but we will be pulled up by the rise in global interest rates, and that will have a knock-on effect on investment and growth in this country.”
Carney’s words of caution came as Canada’s central banker was named the 21st most influential world leader by Time magazine.
Speaking at a gathering of G20 business groups in Gatineau, Que., Prime Minister Stephen Harper said the Greek debt crisis serves as a reminder to other governments.
“The Greek crisis reminds us that government borrowing and government debts cannot go on without limit,” Harper said Thursday.
Greece has to pay off $11.3 billion in debt by May 19, but is unable to raise the money in the markets because of the extremely high cost of borrowing.
To pay off the debt and avoid collapse, Greece is looking for a bailout from the International Monetary Fund and the European Union.
On Thursday, European and German officials assured markets they were working quickly to approve a bailout plan for Greece worth up to $160 billion, in efforts to prevent the debt crisis from spreading to other European nations.
Olli Rehn, monetary affairs commissioner of the European Union, said he was “confident the talks will be concluded in the next days.”
Rehn said negotiators were “working day and night” to develop a bailout that will “safeguard the financial stability in Europe and globally.”
Carney told the committee that he has recently been in touch with European officials and believes that the EU and the IMF will find a solution to the crisis in Greece.
But he stressed that the problem is bigger than Greece. Carney told the committee that industrialized nations need to make it clear to China and other emergent economies that the global economy can not work unless they adjust their currencies and take on a larger role of support.
“What’s required is countervailing policies that are in the interests of other countries to expand domestic demand, particularly in emerging markets, to enhance flexibility in exchange rates and obviously keep the global financial system and trading system open,” Carney said.
Carney also stressed the importance of the G20 nations adopting measures to reform the international banking system to aid in the global economic recovery.
(source: ctv)
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