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This article was published 16/5/2012 (3362 days ago), so information in it may no longer be current.
OTTAWA -- Finance Minister Jim Flaherty is warning the Canadian economy stands to feel the tremors from the political and financial quake in Greece.
The increased alarm over possible aftershocks from Europe follows a decision by the European Central Bank to cut off some troubled Greek banks over reports of a flight of deposits from the under-capitalized institutions.
About US$900 billion in deposits have fled Greek banks since the May 7 election, according reports.
Meanwhile, the lack of a functioning government has shaken confidence that the country will follow through on austerity commitments or that it can even remain in the eurozone.
"These are not good developments. This can create a shock that will affect Canada," Flaherty told a Senate committee Wednesday.
"Our financial institutions have a limited exposure to the Greek banking system, but global banking is interrelated and shocks in the European banking system can have negative effects... in the American banking system and have some effects on the Canadian banking system as well."
Flaherty said the best thing Canada can do to insulate itself is to maintain its fiscal discipline by reducing deficits, paying down debt and ensuring Canada's banks remain well regulated.
The minister did not speculate about how much of a shock would hit Canada's shores, but most analysts do not believe it would be as great as what occurred after the fall of Wall Street's Lehman Brothers in 2008, which touched off a global recession.
The Bank of Canada has named European debt as the No. 1 risk to the global economy. In January, the central bank estimated the unresolved debt issues were already costing Canada 0.6 per cent in economic output this year, or about $10 billion. The cost to the global and U.S. economies was pegged even higher, at more than one per cent of gross domestic product and 0.8 per cent, respectively.
The flow-through to Canada comes from a deterioration of general financial conditions, consumer and business confidence and lower commodity prices from the slowdown in the global economy, it explained.
But Bank of Canada governor Mark Carney has made clear the damage to Canada would be much greater if the situation is not contained.
Flaherty said he believes the richer European countries can still avert a crisis, but need to commit the kind of resources the U.S. did in 2008 to bail out their own troubled financial institutions. Greece may eventually need to leave the eurozone, although that is not inevitable, he said.
That is up to the Europeans themselves, he said, and whether they are willing to put up the money to sustain the common market and currency regime.
-- The Canadian Press