06/11/2012 11:38 EDT | Updated 08/11/2012 05:12 EDT

Harper said leaders are facing false choice between austerity and prosperity

MONTREAL - World leaders wrestling with mounting debt face a false choice between fiscal discipline and economic growth, Prime Minister Stephen Harper said Monday.

In a speech to an international economic conference in Montreal, the Conservative prime minister said the choice does not need to be between austerity and prosperity.

"The Canadian approach is what the world needs, a practical approach and an approach that works," he told the annual International Economic Forum of the Americas.

Ottawa instituted a modest stimulus package after the 2008 financial and economic crisis, but has been cutting spending and expects to balance its budget in 2015.

It's a message Harper says he intends to take as Canada's position at the upcoming G20 summit in Mexico.

The prime minister spoke as a couple dozen protesters peacefully marched under the watchful eye of riot police outside the downtown hotel hosting the conference.

Montreal has been gripped by months of demonstrations since the Quebec government announced an increase in post-secondary tuition fees.

Quebec Premier Jean Charest accused the students, who tried to block access to last weekend's Canadian Grand Prix, of hurting Quebec by their actions.

Political, economic and regulatory officials from around the world are meeting at the four-day conference amid the financial crisis in Europe and concerns about economic growth around the world.

Harper said Canada's strong record of fiscal discipline is one reason it has weathered the economic crisis much better than others, fully recovering lost jobs.

"As Canadians neither are we able, nor do we desire to, impose our views on the world, But Canada can demonstrate through our actions a model that works."

Despite its relatively strong performance, the country is part of the global economy and is sometimes at the mercy of challenges, particularly these days in the Eurozone.

The prime minister applauded European efforts last weekend to shore up Spain's banking system, saying he encouraged by the agreement.

"These are the kinds of measures that the Europeans themselves are able to undertake and that they must undertake to move their economy forward," he said.

Canada and the United States are among the countries that have refused to provide funding to help Europeans get past their financial challenges.

In Ottawa, Finance Minister Jim Flaherty said he was also encouraged by Europe's decision to take the steps the Canadian government has long advocated.

"This doesn't solve the problem but it's a step in the right direction," he told reporters.

Flaherty added that it's up to Europeans to determine if the money should go to unhealthy banks.

Earlier, Bank of Canada governor Mark Carney told the conference that Europe was taking important steps to resolve weaknesses in its banking system that threaten one of the world's largest economic powerhouses.

"This weekend's agreement to recap the Spanish banking system marks important progress towards greater financial and fiscal union that will reinforce the monetary union and it's further evidence of Europe's resolve to address its problems," he told the international forum.

He said efforts to strengthen the financial reforms can be combined with bold steps in Europe to rebuild the single European financial market on a more robust foundation, including consideration of a banking union.

Carney said moves to centralize and recapitalize banks on a European rather than national basis will help to "break the increasingly toxic links between banks and sovereigns."

Failures will happen, but the goal of global reform is to lower their impact. That's one of the reasons for ending Too Big to Fail, a policy that bailed out large U.S. banks and put the brunt of the burden on taxpayers instead of bondholders, shareholders and management.

Bank of France governor Christian Noyer agreed with Harper that there's no contradiction between fiscal consolidation and long-term growth. He said fiscal efforts made in the euro area are already bearing fruit by cutting its deficit while having strong fiscal consolidation.

"What the euro area really needs today is to make progress towards a more coherent and integrated economic and financial union," he said.

Haruhiko Kuroda, president of the Asian Development Bank said further deterioration in Europe could drag the world economy back into recession.

He called Spain's recent decision to recapitalize its banking sector by borrowing money a significant step forward and could pave the way toward a banking union or fiscal union.

Spain became the fourth European country to seek a bailout, receiving up to US$125 billion for its banks in a deal announced on the weekend following help provided for Greece, Ireland and Portugal.

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