Canadian minister for finance Jim Flaherty says the longer the euro financial crisis goes on, the greater the chances it will spread to his country

EUROPEAN LEADERS need to “act in concert” to bring an end to the ongoing sovereign debt crisis, says the Canadian minister for finance Jim Flaherty, adding that, while Ireland should be seen as a “model”, he fears that the crisis is getting worse.

Flaherty is in Ireland this week, fresh from an appearance at the G20 meeting in Los Cabos, Mexico, where the European members expressed a commitment to take the necessary steps to stabilise their banking system and build the necessary firewalls.

“The point we were making is that overwhelming action is needed in order to restore market confidence,” says Flaherty, noting that the incremental measures euro zone leaders have been taking over the past few years have proven “inadequate” to restore market confidence.

“The problem is getting their act together to act in concert,” he says of European leaders, adding that, while he thinks the situation can still be resolved, it is “deteriorating”.

It’s no surprise that Flaherty is getting anxious. Canada, alongside Australia, is one of the few developed economies that have escaped relatively unscathed from the turmoil of the past few years. The fear now is that the longer the crisis goes on, the greater the chances that contagion will hit Canada.

“If we have a credit crisis emanating from Europe, inevitably it will have a knock-on effect on the Canadian banking system,” notes Flaherty, adding that the biggest challenge facing Canada at present is the “European situation”.

Having participated in the International Monetary Fund (IMF) bailout talks with Ireland back in November 2010, Flaherty has had reason to track developments here, and notes that the economy is now doing as it should.

“I think Ireland has been a model for a number of other European countries – a model that ought to be emulated,” he says, pointing out that when Canada was in bad shape during the mid-1990s and had the IMF knocking on its door, it knuckled down to get itself out of the crisis.

“It took some leadership and sacrifice over the next decade and more to get Canada back on the right track. It requires staying the course and the evidence is that Ireland is staying the course,” he says, adding that he could envision Ireland returning to the bond markets in 2013.

While Canada may be in a stronger position than Ireland, it is facing its own challenges, in particular the current weakness in the US economy given that the destination for 75 per cent of Canadian exports is across their shared border.

Apart from these difficulties, however, Flaherty notes that the Canadian economy is “on track”, and he anticipates “modest growth” in the region of 2 to 2.5 per cent this year. In this regard, Canada still makes sense as a destination for those leaving Ireland to find employment.

“There are tremendous opportunities, particularly in construction and in any of the skilled trades as there are lots of major projects going on,” he says.

While unemployment, at 7.3 per cent, is “higher than we’d like it”, Flaherty notes that this “reflects the uneveness of the country. In most of western Canada there’s a skills shortage.”

A strong economy also means a strong housing market and, having taken into account the bursting of property bubbles in its close neighbour as well as Ireland, the Canadian authorities have not been remiss in acting to dampen down prices.

The government has acted four times in the last six years to tighten the mortgage insurance rules, most recently last Thursday when it reduced the maximum term of mortgages from 30 years to 25 years.

But Canada is also learning from Ireland in a more positive way. It recently launched a $400 million (€303 million) venture capital initiative, having first considered Ireland’s Innovation Ireland fund as well as other initiatives in Europe and Israel.

“What we see in Canada is lots of innovation and lots of bright young people in particular, who are creating lots of cool companies. Then they grow to some extent, but when they need more capital they get sold to American companies who later take them public and do rather well.

“It’s a typical situation that we’d like to avoid. Hopefully, they will grow in Canada and employ people in Canada.”