06/28/2012 10:36 EDT | Updated 08/28/2012 05:12 EDT

Europe Debt Crisis: Jim Flaherty Again Calls For Europe To Step Up Its Game


OTTAWA - Finance Minister Jim Flaherty is urging European leaders to agree quickly on a plan to begin the process of rescuing the common market and preventing a major global crisis.

As European leaders began emergency talks in Brussels, the Canadian finance minister delivered a speech in Galway, Ireland, that once again chided their halting and snail-paced response to a problem that threatens the global recovery.

Canada has been taken to task for its boastful and hectoring attitude towards Europe — most recently at the G20 summit two weeks ago — but Flaherty pressed his case Thursday.

The weakness of the European banking system, now in crisis, was exposed as far back as the 2008-09 financial and economic collapse, the minister pointed out.

"Unfortunately, the eurozone response has been incremental and, so far, has failed to break the negative feedback loops that characterize the European crisis," he said.

By contrast, he praised Ireland's response, saying the country made the hard, difficult decisions, including committing to austerity.

"The world hopes that European leaders, meeting at the eurozone summit taking place today and tomorrow, agree on — and quickly begin to implement — the bold actions that they understand are needed," he said.

Specifically, Flaherty said Europe needs to build a sufficiently large firewall — or an emergency fund — to prevent private banking problems from swamping government treasuries.

And he said banks must be fully capitalized, using taxpayer cash if necessary.

Finally, he urged that Europe build a closer union by enacting fiscal consolidation measures, which would require indebted countries to give up some control over national budgets.

At a news conference with Irish Finance Minister Michael Noonan, Flaherty said it is Germany that now needs to step up to the plate.

"Germany as the largest economy needs to take a leadership role if we're going to get a to a resolution," he said.

"The key is a clear commitment to take whatever steps are necessary with more than adequate funding with a timetable."

He said he realized it put German Chancellor Angela Merkel in a difficult political spot, but added: "that's why people are elected, to deal with difficult situations and make choices and then stand by those choices."

The Canadian minister did not offer an opinion in the speech, which was released in Ottawa, on the floating of a eurobond to build up bailout funds. The concept has been endorsed by several countries, but not by the most important in the zone, Germany.

In Brussels, European Parliament President Martin Schulz said leaders "should stop talking about eurobonds now because ... with this definitive 'no' from Mrs. Merkel, eurobonds are now a non-issue."

Before the start of the summit, the European commissioner for economic affairs, Olli Rehn, indicated the leaders would agree to spending US$161 billion on job creation.

Aside from banking and debt problems, much of southern Europe is in recession, which is exacerbating government deficits.

Flaherty said there will be no solution to the crisis until European leaders can convince markets they have a workable plan to deal with the debt issues.

"Without market confidence, a country cannot expect economic growth. And there cannot be market confidence unless there is a solid plan to address the underlying challenges," he said.