Bank of Canada sounds alarm on growing deficits

* Growing recognition of fiscal deficit problem

* Potential for knock-on effects in Canada

* Flaherty says some European nations must tackle problem

By Louise Egan

WASHINGTON, April 25 (BestGrowthStock) – Bank of Canada Governor
Mark Carney warned on Saturday of the need to tackle growing
fiscal deficits around the world, saying some people
underestimate the scale of action needed to bring public
finances under control.

Carney, speaking to reporters following G20 and IMF
meetings in Washington, said the Greek debt crisis had served
as a stark reminder to policy makers of the dangers inherent in
their massive, globally coordinated stimulus plans, widely
credited with preventing a depression.

The Canadian economy could take a hit if other countries
were forced to make bigger-than-expected fiscal adjustments or
implement exit strategies sooner than anticipated, he said.

“That would have a knock-on effect on demand in our
country,” he said.

“What we’re seeing with Greece, and we’ve been seeing it in
the last few weeks, are the indications the limits of fiscal
stimulus depend importantly on the initial conditions countries
had when they embarked on programs,” he said.

Both Carney and Finance Minister Jim Flaherty called on
governments to present “credible” exit strategies to the
world.

“There are substantial fiscal consolidations that are
required in a very, very large number of countries,” Carney
said. “I mean, we’ve seen warlike spending in peacetime and its
going to take concerted effort over a number of years to bring
budgets back to a sustainable level.”

He said anyone feeling complacent about averting an even
greater economic crisis “hasn’t appreciated the scale of what
was done” to achieve that.

“And particularly on the fiscal side (that person) hasn’t
thought through or appreciated the scale of what will be
required to adjust fiscal back to normal.”

Flaherty, who also briefed reporters on Saturday, said a
number of western European countries were running substantial
deficits and needed to address those problems. [ID:nN24156246]

But the finance minister acknowledged that elections in
Britain and Germany this year made it politically difficult for
governments to make unpopular budget cuts.

Carney said there was an “increasingly shared realization”
in the G20 developing and developed countries of the need to
close budget gaps.
(Editing by Jeffrey Hodgson)

Bank of Canada sounds alarm on growing deficits