WASHINGTON - The financial calamity threatening Greece dominated discussions Saturday at meetings of the International Monetary Fund as some European countries expressed fears that US$60 billion in aid won't stave it off, said Canada's Jim Flaherty.
Fresh off winning his battle against a global bank tax advocated by the IMF, Flaherty sat down with a roundtable of Canadian media to say the situation in Greece serves as a warning to countries like the U.S. and Great Britain on the dangers of running astronomically high deficits.
"The crisis in Greece focuses the mind," Flaherty said, adding some countries have "too much optimism" in their economic forecasts and need to deal realistically with their debt problems.
"There are a number of western industrialized economies, including a number of European economies, that are running substantial deficits and accumulating a lot of debt," he said.
"Those issues need to be addressed and can't go on indefinitely, especially since we are starting to see good indications of economic recovery."
The finance minister sounded a note of cautious optimism when he said that if the European Union and the IMF deal quickly with Greece's request for the massive bailout, there's little fear that the Greek situation could lead to the dreaded financial "contagion."
That would mean a cascading series of economic collapses in nearby nations that could result in another global financial meltdown. Portugal and Spain are particular countries of concern in the EU.
"The consensus view is that the situation in Greece can be dealt with in an isolated way and that if it's dealt with fairly soon, that will be the end of that subject," Flaherty said.
The European Union and the IMF are urgently formulating a strategy to help Greece, he added. Conditions will be attached to the package, Flaherty said, although he didn't provide details.
He also said some Group of 20 countries, especially European nations, are nervous that $60 billion won't get the job done.
"Some countries think it's not enough," Flaherty said. "There is concern about making sure that the package is enough so that it's a one-time event."
Greece appealed on Friday for the billions in aid from its European Union partners and the IMF in the worst financial crises to hit the EU since it was founded in 1993.
Flaherty was riding high on Saturday following his successful campaign against the global bank tax recommended by the IMF to ward off another financial meltdown like the one that occurred in the autumn of 2008.
A defiant Flaherty argued it made no sense to tax banks in countries like Canada, where no taxpayer bailouts were required to prop them up during the economic tailspin, and vowed he would not implement such a levy in Canada.
In a communique issued at the end of Friday's meetings of G20 finance ministers and central bank governors, there was no endorsement of the multilateral bank tax. It will be discussed again at the G20 in Toronto in June, but Flaherty reiterated Saturday that there's not enough support for it among the 20 member nations.
While visits from Canadian cabinet ministers to D.C. usually attract attention from mostly Canadian media, Flaherty was trailed by reporters from high-profile international news outlets for days as he railed against the tax.
Even U.S. Treasury Secretary Tim Geithner tipped his hat to Flaherty at his own news conference at the end of the meetings on Friday.
"All things are swinging Canada's way," he joked. "They won the medal in the Olympics, the hockey medal. That is a good sign for Canada."
Flaherty was modest Saturday about his newfound celebrity on the global economic stage, but conceded it felt odd to find himself disagreeing so vehemently with some of the world's economic powerhouses.
"What was a little bit unusual about this was that one tries to have unanimity of views in the G7, in the Western industrialized economies, and Canada's the smallest player in that group," he said.
"So there was some hesitancy to disagree so clearly with the UK and France and Germany, but on the other hand, their circumstances were so different going through the crisis that our first duty is to our own countries."
But Flaherty, who went to Princeton on a hockey scholarship, expressed delight that Geithner made mention of Canada's Olympic hockey glory in his news conference, guffawing about it to reporters at the conclusion of the roundtable.
On other matters of global economic importance, Flaherty said it was "likely" that China would move to liberalize its foreign-exchange policy after he enjoyed a long dinner conversation with his Chinese counterpart during his time in Washington.
Looking forward to the G20 summit in Toronto in June, Flaherty said there's consensus among the member nations on several key issues surrounding financial sector reform, if not the global bank tax.
The countries agree on how to go about implementing reform, including "quality and quantity of bank capital, standards for both, and a cap on leverage," he said.
"And then going down the list to effective regulation - we think that's very important, because most of the financial institutions that failed during the crisis were regulated, but not effectively regulated. And we think Canada is a model of effective regulation, quite frankly, and the Canadian model or something like it ought to be implemented globally."