Stephen Harper: U.S. Fiscal Cliff A Hazard, But Long-Term Outlook Also ‘Very Bad'

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STEPHEN HARPER FISCAL CLIFF
Prime Minister Stephen Harper says that the U.S. fiscal cliff isn't the only thing he's worried about. (Adrian Wyld/CP) | CP

Prime Minister Stephen Harper had some blunt words to say about the U.S.’s financial situation in Vancouver Thursday.

"The United States fiscal situation is very bad, the trajectory is very bad," Harper said at a conference sponsored by Bloomberg, as quoted by Reuters.

Asked about the U.S. “fiscal cliff,” which would see massive automatic spending cuts enacted if the U.S. Congress can’t agree on a budget plan, Harper said the cliff was a hazard but stressed that even if Congress overcomes its budgetary gridlock, the U.S. will still be facing long-term fiscal problems.

"I know everyone is concerned about the so-called fiscal cliff, and rightly concerned about it -- a sudden and dramatic contraction could be unhelpful," Harper said.

But, the prime minister said, “regardless of what happens in the next three or four months, in the next few years that trajectory still has to be resolved.”

The Congressional Budget Office estimates that the fiscal cliff would shave 3.5 percentage points off the U.S.’s economic growth and send the country spiralling back into recession. TD Bank economist Craig Alexander recently told The Huffington Post Canada that this would stall Canada’s economy, because of the large volume of trade between the two countries.

The fiscal cliff came into being last year during the congressional showdown over raising the U.S.’s federal debt ceiling. As part of a last-minute agreement, a congressional super-committee agreed to raise the ceiling but only if a long-term budget-cutting deal were reached by the end of 2012.

If no such deal is reached, $100 billion in annual cuts, primarily to defense and entitlements (Medicare and social security) will come into force beginning in January, 2013.

Observers fear that the highly-polarized U.S. House of Representatives won’t be able to reach an agreement on the budget by the end of this year, triggering the fiscal cliff.

At the Bloomberg conference, Harper also expressed concerns about the proposed sale of energy company Nexen to CNOOC, China’s state-owned oil company.

It would be up to the Chinese state firm to prove they “play by the same rules,” Harper said.

"We want to see this economic relationship continue to expand," he said. "But we want to see it expand in a way that there's a clear two-way flow and clear benefits for both sides. Win-win to use the Chinese expression."

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