OTTAWA - Prime Minister Stephen Harper is warning that Europe is running out of time to fix its debt problems, but his government has prepared "contingency plans" just in case Canada is forced to contend with a second global recession.
The frank assessment came in an interview Harper gave CBC's The National while attending the Queen's Diamond Jubilee celebrations Tuesday in London.
At one point during the interview, the prime minister admitted that not only is he worried about Europe's financial future, he has been for some time.
"I am concerned," he said. "Even since mid-'08, I have been constantly worried."
At times, he strikes an almost exasperated tone as he discusses the failure of European leaders to deal once and for all with their on-again, off-again financial crisis.
The Bank of Canada said Tuesday that those problems have worsened in the past few weeks — so much so that they have prompted a "sharp deterioration" in global financial conditions. The latest crisis concerns the solvency of European banks, particularly those in Spain, but a Greek exit from the eurozone following mid-June elections also looms as a potential shock.
"We are four years in," Harper said of the duration of Europe's problems.
"I don't want to sound too alarmist, but we are kind of running out of runway here ... I am told already by my counterparts around the world that it has already been affecting most other economies.
"We just can't say, 'Let's wait until the Greek election.' We cannot have a Greek election determining the future of the global economy, that's not fair to anybody."
North America has been relatively immune from the fallout of Europe until this point, "but if it gets much deeper it will affect us all," he added.
Harper described the economic recovery, even in Canada, as fragile and said he is worried that short term solutions of the kind Europe has tried so far are not going to be sufficient.
Throughout the interview, Harper repeatedly referred to what occurred in 2008, after New York investment bank Lehman Brothers collapsed, exposing an inter-connected global financial system that had bet heavily on overpriced housing, bad debt and credit hedges few could cover.
"We do have contingencies in place to minimize the impact on us as we did in 08-09," Harper said.
He was not specific, but suggested the measures would be similar to ones deployed during the recent recession, when Ottawa and the provinces spent billions to pump up the economy and the Bank of Canada slashed rates and injected liquidity to ensure banks continued to lend.
"If we found ourselves in catastrophic situations as we did in '08-'09, (there) would be additional things we would have to do," he said.
Earlier this week, Finance Minister Jim Flaherty also suggested the government would return to stimulus if a recession occurred. He pointed out that unlike many advanced countries, Canada's finances are in sufficiently good shape to afford new spending.
Economists say the most immediate impact of European contagion would be through a reduction in global demand for Canadian exports, including oil, and a fall in commodity prices. An accompanying stock market plunge would sap wealth from Canadian households and a credit squeeze would also slow economic activity.
Harper offered some advice for Canadian investors: "Don't cut and run."
He noted with some chagrin that during the 2008 election campaign, in the aftermath of the collapse of equity markets, he famously advised Canadians to take advantage of low prices and invest in stocks.
While he might have expressed himself badly, he said, he remains of the same opinion.
"Have a mid- to long-term game plan and stick with it," he said. "Things will go up and down in (the) short term ... (but) there will always be solid businesses, and solid markets will always experience growth over time."
Canada <a href="http://www.cga-canada.org/en-ca/ResearchAndAdvocacy/AreasofInterest/DebtandConsumption/Pages/ca_debt_default.aspx" target="_hplink">hit a record high</a> in the first quarter of 2011, reaching $1.5 trillion in household debt. If spread evenly across Canada, that means every family with two children has $176,461 in debt. In the U.S., <a href="http://blog.unibulmerchantservices.com/u-s-household-debt-holds-steady-in-2011-q1/" target="_hplink">household debt</a> hit $11.5 trillion by the end of March this year. The average household debt in the U.S. for a family of four is $148,000.
Loans owed to Canada Student Loans amount to <a href="http://www.cfs-fcee.ca/studentdebt/index.html" target="_hplink">nearly $14 billion</a> and rising. In the U.S., where tuitions are considerable higher, loans owed <a href="http://www.finaid.org/loans/studentloandebtclock.phtml" target="_hplink">exceed $932 billion</a>, including federal and private loans.
With their debt ceiling raised again, the U.S. has <a href="http://www.treasurydirect.gov/govt/reports/pd/mspd/2011/opds072011.pdf" target="_hplink">more than $14 trillion</a> in government debt in the first quarter of 2011. Canada has more than <a href="http://news.nationalpost.com/2011/03/21/graphic-50-years-of-canadian-debt/" target="_hplink">$563 billion</a>. That figure works out to 84 per cent of Canada's GDP, compared to 58.9 per cent for the U.S.
In the first quarter of 2011, the average Canadian had more than $3,500 in credit card debt, according to <a href="http://newsroom-en.transunion.ca/easyir/customrel.do?easyirid=8AD5A6701E126601&version=live&prid=762822&releasejsp=custom_144" target="_hplink">TransUnion Canada</a>. In the U.S., the average American consumer owes more than $4,200 in credit card debt.
As of June 2011, the median cost of a home in Canada was $372,000. Vancouver, Victoria and Toronto are some of the most expensive places in the country to buy a house. Prices in the U.S. vary more than they do in Canada. As of June, the median price of a home in the Northeast was $261,000, while the median price in the Midwest was $147,000. The median in the South was $159,100 and in the West, it was $240,400. The average price of a home <a href="http://news.bbc.co.uk/2/shared/spl/hi/in_depth/uk_house_prices/html/houses.stm" target="_hplink">in the UK</a> is £232,628 as reported by their first quarter in 2011, which converts to around CAD $371,000.
In 2010, there were more than 1.5 million non-business bankruptcy filings in the U.S. In the same year, there were only 92,694 personal bankruptcies in Canada. That means there were 48 bankruptcies per 10,000 people in the U.S., and 28 bankruptcies per 10,000 in Canada.