OTTAWA – Finance Minister Jim Flaherty is not yet convinced the recovery is self-sustainable or that the world has learned the necessary lessons from the economic crisis.
Those are the messages Canada’s finance minister will take to a meeting of his G20 counterparts in London on Friday as the world’s top economic ministers meet to discuss what has been a sudden reversal of the world’s economy for the better.
A senior Finance official briefing reporters on the meeting says Flaherty will be stressing that now is not the time to start pulling back from massive governmental stimulus, because the global economy may collapse.
The official, who spoke on background, says Flaherty believes economies have indeed stabilized, but that is largely as a result of public sector stimulus, and central bank policies that encourage borrowing with low interest rates.
The necessary private sector recovery has not materialized yet to the point of being able to pull nations out of recession, the official says.
G20 ministers should start thinking about winding down the stimulus, the official says, but with the idea this likely won’t be necessary until early 2011.
Flaherty will also be stressing that nations, particularly the United States and many in Europe, must follow through with commitments to reform dysfunctional financial institutions, including outlandish executive bonuses that encourage risk.
While Canadian banks have been praised throughout the crisis, the official says Canadian institutions must also come under greater scrutiny. He says the Office of Superintendent of Financial Institutions will be tasked to ensure that compensation schemes at Canadian banks do not encourage decision-makers to take risks in order to obtain higher bonuses.
