Finance Minister Jim Flaherty is urging his fellow G7 finance ministers who gathered in France this weekend to "stay the course" on deficit and debt reduction and is calling on the eurozone to increase its bailout fund.
The danger "is that we have countries slip into deficit and debt situations that put them in peril, quite frankly, and that markets lose confidence in the economy," Flaherty told CBC News from Marseille. "We don't want any more of that. We've seen some of that already in certain peripheral European countries."
Those domestic problems can, and have, spread beyond their borders, Flaherty said.
Flaherty called on the eurozone Friday to increase its bailout fund beyond the current $440 billion, an unusually concrete demand from a non-European politician.
Flaherty optimistic about Canada's outlook
Flaherty said he expects to be able to "stay on plan" in Canada, but would be flexible if the economic system received a "shock, particularly from Europe."
"If the European situation got out of control, and then if that affected our economy dramatically, of course we'd be pragmatic and we'd take the necessary actions. We've done it before and we would do it again. But I don't anticipate that will happen. Our revenues this year are good. We had a weak second quarter, but I expect the rest of the year will be good."
Christine Lagarde, the head of the International Monetary Fund, urged policymakers to take concerted action quickly. The so-called Group of Seven economies comprise the U.S., Canada, Japan, Britain, France, Italy and Germany.
"The key… is for policymakers to act with conviction and urgency in tackling today's challenges, while at the same time being nimble, should circumstances change," Lagarde said in London before travelling to the G7 meeting.
But big new measures and strong unity in the face of a threatening economic slowdown were elusive among finance ministers and central bankers gathering there, with different countries touting divergent solutions to the crisis.
"I don't think you should expect from this meeting any dramatic change in signals," U.S. Treasury Secretary Timothy Geithner said in an interview on Bloomberg TV.
With little prospect for united action on economic stimulus, the three eurozone countries in the G7— Germany, France and Italy — were facing pressure from the other members to find a lasting solution to the debt crisis that has dragged on for nearly two years.
Global outlook downbeat
The talks came on the back of a downbeat assessment of the global outlook by the Organization for Economic Co-operation and Development. The watchdog for the world's most developed economies slashed its forecast for growth in the U.S. and the eurozone this year due to government belt-tightening and falling consumer and business confidence.
The meeting also came after Canada lost a total of 5,500 jobs in August — the second consecutive month that employment picture was little changed.
"It's not a good sign," said Elmer Kim, general manager of the Ontario investment firm Roynat Capital. "What's clear is that the Canadian economy is catching the tailwind of the U.S. economy, and it really is slowing down. The U.S. hasn't added a job in 15 years... and the jobs Canadians are adding are low-quality, low-paying jobs."
Michael Hyatt, CEO of BlueCat Networks, said there's a misconception among Canadians that they are protected from the vagaries of the U.S. economy.
"We don't have a broken political system and we probably can balance our deficits, but there's never been a time where the U.S. goes into recession or has a really dark hour that we don't at least follow or come near to it," he said.