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The Prime Minister is preparing Canadians for the possibility ofanother recession, while insisting that it s the Europeans, nothis government, who will be to blame. The blunt truth, however, is that it doesn t matter who is toblame. If recession comes, this time there will be very little thatany Canadian politician can do about it. Governments in Canada don t have nearly as much latitude as theydid in the last episode to open their taps, says Douglas Porter,deputy chief economist at BMO Financial Markets. The federal finances are in reasonably good shape. If a Europeancalamity creates a global financial crisis that sends Canada into arecession, Finance Minister Jim Flaherty may choose to push backthe date for balancing the books from the current target of 2015. If he wanted to, Mr. Flaherty could do more, by increasing thedeficit and pumping billions into the economy throughinfrastructure or other stimulus spending. But neither Mr. Flaherty nor Mr. Harper are fans of big stimuluspackages they had to be pushed into creating the last one byopposition parties that threatened to bring down the government and the fact remains that a new recession would arrive with Ottawaalready running deficits, unlike the last one, which began with thefederal books in surplus. The larger problem is that the biggest provincial governments,which normally would amplify federal stimulus spending by matchingit, have hit a fiscal wall of their own. Their combined deficitsare now about as large as the federal deficit. There s far too much focus on the federal government and notenough on the provinces, Mr. Porter maintains. The McGuinty government in Ontario is engaged in a grim battle toeliminate a large and chronic deficit. The province s ratio ofdebt to gross domestic product has reached 40 per cent. There ssimply no room in Ontario for a massive new bout of stimulusspending. Quebec is in even worse shape. Despite strong measures by theCharest government to eliminate the deficit which is the realreason that students have taken to the streets the province issaddled with a debt-to-GDP ratio of 54 per cent. If Ontario ishitting a wall, Quebec is in danger of going off a cliff. British Columbia, the third biggest provincial economy, is betteroff, but the Liberal government there hasn t been able to balanceits books in recent years, and sending the deficit through the roofto fight a recession could earn the province a call from thecredit-rating agencies. In sum: If a recession does arrive any time in the next few years,the federal government will be less able and willing to fight itwith massive spending, and most of the provinces will be hogtied. I would not expect anything from a province, that s for sure, predicts Ron Kneebone, a professor of economics at the Universityof Calgary. That s just as well, from Prof. Kneebone s perspective. Hebelieves government spending is largely a waste of money during adownturn, which should be fought instead through monetary policy. But even Conservative politicians, he notes, have a hard timeresisting the urge to action in a financial crisis. And NDP LeaderThomas Mulcair will be pushing for the biggest stimulus packagepossible. If a recession arrives, the great fight in Ottawa will be between aConservative government reluctant to pile on tens of billions ofdollars in new debt, and an NDP opposition that demands just thatto combat unemployment. It would be an ugly debate, fought on the backs of sufferingworkers and stricken businesses. We can only hope the Europeansfind a way out of the mess that they re in danger of dragging usall into. More Related to this Story Interview With EU running out of runway, Harper urges deeper fiscalintegration Legislation Budget filibuster could sideswipe other bills on Tory agenda Jobs Studies unclear whether EI helps or hinders worker relocation Diplomacy Harper s refusal to help bail out Europe draws Germany s ire Editorial Harper shouldn t dismiss outright IMF s appeal for help forEurope. The e-commerce company in China offers quality products such as Plastic Bucket Mould , Custom Plastic Containers, and more. For more , please visit Plastic Molded Parts today!
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