November 16, 2011
Archived - Speech by the Honourable Jim Flaherty, Minister of Finance, to private sector senior executives
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It is great to be here and thank you for the opportunity. I thank Manulife for their kind hospitality in sponsoring this luncheon and the Ambassador for his efforts in organizing this event.
I would like to begin by bringing greetings from our Prime Minister, Stephen Harper, and from the Government of Canada to all of you.
We have had many meetings as Finance Ministers these past several years. I am pleased that I got to know Prime Minister Noda initially as Finance Minister. This morning I met with Finance Minister Azumi, and he and I saw each other recently quite often in Cannes and Paris and in other places.
I would also like to express my condolences on behalf of the Government of Canada and all Canadians for the losses Japan suffered in the wake of the terrible earthquake and tsunami that occurred earlier this year. The courage and resilience your country displayed in the face of these disasters and the steps that are underway to ensure a speedy recovery are an inspiration to the whole world.
Japan is an extraordinary country, highly respected and regarded by nations around the globe—and certainly by my own country. The trade relationship between our two countries is one of Canada’s most important relationships. Japan is our fifth largest merchandise trading partner and our largest bilateral foreign direct investment partner in Asia.
More importantly, as G-7 and G-20 partners, your country and mine share the common goal of overcoming an unprecedented and profound global economic crisis.
That brings me to my remarks today.
I would like to focus on three key points:
- First, the current state of the world economy.
- Second, its effects on our two countries and the rest of the world.
- And finally, a look at the challenges we face in preserving and strengthening the global economic recovery.
On the first point, as we all remember too well, the autumn of 2008 unleashed the worst economic slowdown to hit the world economy since the 1930s. Three years later its effects still linger.
I remember well being at a G-7 meeting in the Cash Room of the Treasury on Friday, October 10, 2008, with U.S. Treasury Secretary Hank Paulson, Jean-Claude Trichet from the European Central Bank and all the other Ministers. Hank Paulson started the meeting off by saying we’re in a lot of trouble, which we were. Markets were freezing. It was unclear whether the markets would open on Monday.
Banks had failed in the United States, including Lehman Brothers, and in the United Kingdom, and some of the German regional banks had failed. The Americans were quick to say that this was a difficulty that had first arisen in the United States with the subprime mortgage crisis. It was interesting at the time to hear the criticisms of the United States by some of our European friends at that meeting. One of them even had a sheet showing how the bond spreads had moved since the collapse of Lehman Brothers. Some of the European banks had capital ratios of 30 to 1, 35 to 1 and 40 to 1 at that time. Now things are looking a little bit different.
We all have to be conscious of the fact that we’re not immune to challenges here, as Canada knows from our challenges in the 1990s when the IMF was looking at Canada because of our accumulated deficits and public debt. We had to get our house in order starting in the middle of the 1990s through to the present.
The most immediate issue is Europe, where concrete actions are clearly needed to deal with the sovereign debt and banking sector crises. This dire and pressing problem threatens not only Europe itself, but countries like our two countries that are far from its borders.
It also threatens the strong, sustainable and balanced growth that other G-20 countries have made their priority since the crisis first began. It could even potentially bring the world to the verge of another recession.
Thankfully, the agreement eurozone leaders reached in late October marked an important step in Europe’s efforts to contain the crisis. I’m pleased that Japan welcomed that step forward. I’m even more pleased that Prime Minister Noda called on the EU leaders to make even greater efforts to resolve their sovereign debt turmoil to prevent contagion from spilling over to Asia or the global economy.
It is clear that many significant operational issues remain to be addressed in Europe and that further timely action in Europe is essential. I look forward to seeing the European plan fleshed out and made operational. But the crisis in Europe is only one of the major challenges facing the world today.
As you know, global growth is weakening. Downside risks have heightened considerably and confidence has waned.
- In the United States, the recovery has been weaker than expected. Emerging markets have also shown clear signs of slowing.
- After a strong start to the year, Asian growth slowed due in part to sluggish demand from advanced economies and the catastrophes here in Japan and now in Thailand. These have disrupted supply chains, industrial production and exports across the region and, as was the case for Canada’s economy, have affected nations far beyond the region.
- Just last week, IMF head Christine Lagarde noted that Asia should be on guard to deal with a downturn.
Now let me say a few words about the respective strengths of your great country, Japan, and our great country, Canada.
Japan has dealt with this sort of serious challenge before. Long before the 2008 recession hit, Japan was faced with its own recession beginning in 1990. Japan persevered. In spite of this lengthy period of turmoil, Japan remains a major global economic power with significant influence in Asia. As business leaders, you should be justly proud of your country’s many strengths. For example:
- Japan is home to 64 Fortune Global 500 corporations and is the world’s largest exporter to China.
- Japan is often praised as one of the world’s most innovative countries.
- And with a GDP of $5.6 trillion, Japan is the world’s third largest economy.
Canada is rightly proud of the strong economic ties that have formed a cornerstone of the Canada-Japan relationship. In November 2010, for example, the Japanese Cabinet issued its Basic Policy on Comprehensive Economic Partnerships, which proposes changes to Japan’s approach to trade negotiations and agricultural policies.
Following the release of this policy, bilateral meetings of Prime Ministers and Ministers took place at last year’s APEC Summit. At that time, Canada and Japan agreed to consider deepening already strong economic ties. Our countries are now moving forward with a Joint Study on the Possibility of a Canada-Japan Economic Partnership Agreement.
Our government sees engagement and increased trade with Asia as important drivers of Canada’s long-term prosperity and growth. We realize that today’s rapidly evolving marketplace bears little resemblance to past trade patterns. That is why Canada has signed or is pursuing trade agreements with some 50 countries, including the EU and India, as part of our own government’s Global Commerce Strategy and why we took steps to become the first tariff-free zone for manufacturers and processors in the G-20.
We believe that an ambitious and comprehensive trade agreement with Japan will have enormous economic benefits for our two countries. We sincerely hope that the Joint Study will be completed as quickly as possible and that we can move on to next steps required to make an agreement become a reality.
A few words, if I may, about Canada’s strengths.
I can say confidently that in Canada you have a valued partner of your own. Canada has weathered the recession and the current global turmoil better than most other countries. Canada has more than recovered not only all of the output but also all of the jobs lost during the global recession.
Both the IMF and the OECD forecast we will have among the strongest economic growth in the G-7 in the years ahead. In addition, Canada’s financial system has been widely recognized as a model of stability and prudence.
A few examples:
- Forbes magazine recently ranked Canada number one in its annual look at the Best Countries for Business.
- For the fourth year in a row, the World Economic Forum rated our banking system as the soundest in the world.
- Three rating agencies have all renewed Canada’s AAA credit rating, using words like “superior,” “resilient” and “conservative” when explaining why they did so.
- We’ve done a couple of bond issues—one in euros and one in US dollars. Even with some global volatility, they’ve been highly successful and oversubscribed.
- A couple of international studies prepared by the G-20 Young Entrepreneur Summit recently concluded that Canada is one of the best countries among the G-20 for small business owners, an entrepreneurial hotbed of business confidence, and a “start-up paradise” within the G-20.
Needless to say, Canada is attracting a lot of foreign direct investment. We welcome and encourage this investment. We welcome and encourage your investments in Canada.
While this international recognition is appreciated, the ongoing crisis in Europe and other threats to the global recovery are stark reminders that many challenges remain to be addressed.
With the unusually high degree of uncertainty in the current global economic outlook, it’s all too clear that the world still has a host of challenges to meet.
And that brings me to my next point.
There are good reasons why I remain concerned about the situation in Europe, and they lie beyond the current threat of another global crisis. I’m talking about the G-20 and its critical role in restoring market confidence, addressing global imbalances and protecting the fragile global recovery.
Since the Pittsburgh Summit in 2009, the G-20 has been working to develop the Framework for Strong, Sustainable and Balanced Growth. The goal of the framework is to bring much-needed balance to the global economy for the benefit of all. This requires that countries with large trade surpluses increase their own demand and become importers of goods and services from countries that have historically been their customers. It also requires that all countries have economic policies whose benefits go beyond their borders, like flexible exchange rates, credible fiscal plans and effective financial regulation and oversight.
Nearly a year and a half after my country hosted the Toronto Summit, the G-20’s role has become even more crucial to preserving and strengthening the global recovery.
Earlier this month, I joined Prime Minister Stephen Harper at the G-20 Summit in Cannes, where Leaders had an in-depth discussion on the troubling outlook for the global economy and the steps that must be taken to address it. One key step, which is highlighted in the communiqué issued after the Summit, is the Cannes Action Plan for Jobs and Growth.
This is the Action Plan that our Leaders told the Finance Ministers to create at the Pittsburgh Summit in 2009. Canada was asked to lead that effort, co-chaired by India. There were some difficult negotiations during the course of the development of the Action Plan, as you would expect. There were some difficult discussions with China about the importance of flexibility of exchange rates.
We made progress to the point where we had an agreement that we could present to the Finance Ministers in Paris several weeks ago and then to our Leaders in Cannes to obtain their approval. The plan is a wide-ranging blueprint that we believe, once acted on, will address short-term vulnerabilities while strengthening the foundations for growth over the long term.
With the global economy in a very fragile state, it is all the more important that G-20 members work together to promote growth and stability. The Cannes Action Plan is a reflection of the degree of cooperation that is required. The Action Plan, which involved compromises, is beneficial for all of us and must be implemented. Its success will depend on the willingness of all G-20 members to undertake reforms.
Japan can make an important contribution to this effort by strengthening its public finances while at the same time implementing reforms to promote domestic spending. In an ever-volatile economy, I call on all the other members of the G-20 to once again send a clear signal that the G-20 stands ready to act to secure growth and stability for all.
In Canada’s view, there are five priorities:
- First, the establishment of clear and concrete medium-term debt and deficit reduction plans—the commitments advanced by G-20 nations in Toronto last year—to put public finances on a credible and sustainable track.
- Second, meaningful actions from all countries with large surpluses to adopt more flexible exchange rates.
- Third, ambitious and timely implementation of much-needed structural reforms to boost economic growth and create jobs.
- Fourth, an unequivocal commitment to the full and timely implementation of the financial sector reform agenda agreed to in previous summits to ensure the ongoing stability of the global financial system.
- And finally, a continued commitment to resist trade protectionist measures, and to open trade and investment by advancing the multilateral trade agenda.
The agreement we were able to reach in Cannes this month is a positive development in reaching these goals, but unless acted upon it will remain only a global aspiration, not a lasting solution.
Together, we can bring that goal of a stable and sustainable recovery to life.
Clearly, Canada and Japan share a long and very special relationship, and we are working toward a future that is mutually beneficial for both countries.
As G-7 and G-20 partners, we have consistently honoured our obligation to provide the leadership necessary to set the global economy on a path to a sustainable recovery—even when, in Japan’s case, it has had to simultaneously deal with catastrophic challenges that tested the courageous mettle of your extraordinary people and country.
Even though we have many serious challenges to meet, we also have a tremendous opportunity before us. We must seize it.
Together, we can continue to demonstrate the kind of leadership needed to help enhance the soundness of the global economic recovery.
Of course, we can’t do this alone. It is crucial for all governments to work together in a coordinated effort to restore confidence and growth.
- This requires concrete actions and staying the course even when it’s painful.
- It means understanding that global institutions and multilateral relations are based on collaboration and that each country’s actions can have spillover effects that impact the global economy.
- And finally, it demands the realization for some countries that harsh medicine may be difficult to swallow, but it will lead to a quicker and more effective recovery.
We need organizations and countries that show leadership through political will, decisiveness and clarity.
I know that’s a tall order but I firmly believe that these attributes offer the best way to strengthen market confidence and forge the policies needed to promote and sustain the global recovery.
Thank you. It’s a pleasure to be here today.