10/21/2011 02:20 EDT | Updated 12/21/2011 05:12 EST

Flaherty says Canadian, U.S. economy should stay strong despite Europe

OTTAWA - Jim Flaherty is not worried about inflation, he's not particularly worried about the economy either.

He's mainly worried about Europe, he says.

The finance minister said Friday that he is actually "fairly optimistic" about Canada's economy and that of the United States, if only the Europeans would get their act together and deal with a growing debt crisis.

And about Canada's inflation rate rising to 3.2 per cent in September, Flaherty said that's OK given that the Bank of Canada's mandate calls for keeping price fluctuations within a one-to-three per cent range.

"I'm more concerned quite frankly about growth in the country, economic growth," he told reporters at an event in Ottawa.

"Actually in North America, I'm fairly confident about modest growth over the next little while which will help, importantly, with respect to jobs."

Fears of another recession in Europe and the U.S. and a slowdown in China have eroded demand in recent months for Canadian exports — weakening a sector that had underpinned this country's economy in recent years.

Slower growth will make it more difficult for Canada's 1.4 million unemployed to get work and lower the 7.1 per cent national unemployment rate.

While worries persist about the economy's future, the current jobless rate is still lower than the 8.53 per cent average rate over the last 35 years, but is still higher than the record low of 5.9 per cent in September 2007.

In a forecast issued Thursday, the Conference Board predicted Canada's economy would expand by 2.4 per cent next year, while the U.S. would grow by 2.5 per cent. The Bank of Canada will issue its new quarterly outlook for Canada and the world next week.

But the Conference Board made clear its projection for moderate expansion would go out the window if Europe's debt problems trigger bank failures and a new global financial crisis, as the Lehman Brothers failure did in 2008.

Flaherty repeated his warnings Friday that European leaders must get ahead of the problem and show leadership.

But the minister was clearly annoyed with reports that France and Germany are split on how to expand the 440-billion euro bailout package, or how to proceed in general, heading into a critical meeting of European leaders this weekend.

Flaherty, along with leaders in the U.S. and Britain, have voiced displeasure over European indecision and delays for weeks, but the Canadian minister appeared on the point of exasperation Friday.

"The regrettable thing about this entire process in Europe is their delay and their delay has made a serious situation a severe situation that endangers the global economy," he said.

"All they have to do is look at the market, look at the bond spreads, look at what is happening to certain countries in the world who are going to have to pay an awful lot of premium to borrow money ... delay is the enemy."

Markets have been reacting like a yo-yo to each new development, mixed signal or rumour coming out of Europe for weeks. Investors took a drubbing Monday, recovered Tuesday, only to lose it all back again Wednesday. Markets have been mixed in the latter part of the week as investors bide their time in anticipate of a final solution this weekend.

This week protesters in Greece rioted over proposed austerity measures, while Moody's credit rating agency downgraded Spain, while suggesting France, the eurozone's second largest economy, may be next.

Flaherty said the current bailout package is inadequate to address the problem that appears to be worsening by the day.

Given what Europe, and to a lesser extent the U.S. and Japan face, Flaherty added he is fortunate to be the finance minister in Canada.

"I'm in Europe and sit around the table with the G20 finance ministers and they come around and say to me, 'Wow, is your country ever doing well. I wish I were the finance minister in Canada,' " he said, adding he agrees with their assessment.

"This is fabulous for our country. Our brand is sterling."

He said one of the reason's Canada is doing well relative to many other advanced countries is that it has its fundamentals right by keeping corporate taxes low, a remark aimed at the NDP opposition that opposes the cut in the federal corporate income tax to 15 per cent in January.