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Embassy
Sneh Duggal
Wednesday, November 2, 2011

Canada will be able to "punch above its weight" at the G20 summit as a result of the country's reputation as a strong performer during the recession, say some observers.

Yet while world leaders may give Prime Minister Stephen Harper more "credibility" during the Nov. 3-4 summit in Cannes, France that aims to prioritize financial stability, others note that Canada's economy still needs significant work.

"Canada's reputation has grown in the past three years, people have become more aware of what we've done, and the things we've done right," said Ian Lee, assistant professor at Carleton University's Sprott School of Business.

"Now these virtues are being recognized by other people and other countries, so I think Canada is able to punch above its weight now, today, at the G20, because of the enhanced recognition of the things that we did in the recession."

The government has taken numerous opportunities to highlight its performance during the recession. Finance Minister Jim Flaherty stated in a speech in Montreal in June that the country "did not have double-digit unemployment."

"We did have three quarters of recession, but by mid-2009 we came out of recession and we have now had seven continuous quarters of growth, including a very strong first quarter this year," he said.

"That gives Canadians, people who are involved in economic decision making...more credibility when they talk abroad, because they talk from a Canadian experience." Daniel Schwanen

But all this is by no means to suggest that Canada is perfect. John Curtis, former chief economist for the government's foreign affairs and international trade department, said that Canada has probably already worn out its reputation.

High household debt proves the Canadian economy is not as good as it is made out to be, he said. Household debt reached a record high this year; it averaged at 149 per cent of personal disposable income in the second quarter, according to Statistics Canada.

And while Canada's gross domestic product grew in August for the third consecutive month, the statistics agency says the 0.3 per cent growth was largely due to the energy sector. Other than energy, GDP would have remained the same throughout August, it announced on Oct. 31. GDP also declined by a 0.4 per cent annualized rate during the second quarter.

Embassy reported in September that the second quarter decline was largely a result of a decrease in exports during the same period. This was attributed to weather-related factors that hit energy production in Western Canada, a slowdown of the US economy and the 8.9-magnitude earthquake that hit Japan in March.

Meanwhile, the Bank of Canada had projected third quarter growth of around 2.8 per cent, but that number was revised to 2 per cent. Growth is expected to shrink during the fourth quarter to 0.8 per cent.

Regardless, Daniel Schwanen, a senior fellow with The Centre for International Governance Innovation who analyzes global economic issues, said many countries probably wish they had done what Canada did during the economic downturn. Because of this, Canada has the "soft power" that comes with credibility.

"That gives Canadians, people who are involved in economic decision making...more credibility when they talk abroad, because they talk from a Canadian experience," he said.

"Part of it was luck, part of it was just intelligent management of our banking system, public finances and monetary policy."

Mr. Harper's push with Europeans has been apparent through a collective letter he signed with leaders of Australia, Indonesia, Mexico and the Republic of Korea in September, and through his opinion piece in the Globe and Mail on Oct. 13, Mr. Schwanen said.

While other leaders have been voicing statements similar to Mr. Harper, the prime minister has a voice that matters for Europe, he said.

One of the ways Europe can get back to growth is to boost exports, he argued, and the best chance for that is to open the Canadian market through the Canada-EU trade deal.

John Kirton, co-director of the G20 Research Group at the University of Toronto, said Mr. Harper would likely voice his concern about protectionism during a period of slowing growth, adding that the prime minister has also been out in front playing a bridge-building role in order to try to get the Europeans to do something about their economic situation.

European nations developed a rescue package last week, which included an increase in a bailout fund to about $1.4 trillion and creditors being asked to accept half the value of their insolvent Greek bonds. Through this deal, large banks would also increase their reserves and Greek leaders would reduce their debts to 120 per cent of GDP by 2020.

But days before the summit, Greek Prime Minister George Papandreou shocked world markets by announcing his plan to hold a referendum on the package—a move that Bank of Canada Governor Mark Carney supported.

Bessma Momani, senior fellow with CIGI and a member of the organization's G20 Working Group, said that while Mr. Harper will likely continue to point out that we did very well during this crisis and that our banking sector has survived quite nicely, he is also going to keep Canadians on alert and highlight that the crisis isn't over.

Canadian could take reigns of FSB
The fact that Canada has withstood much of the crisis that began in 2008 will likely play to its advantage, as the Canadian government pushes for Mr. Carney to be named the next chief of the Financial Stability Board.

The FSB is the global body established to oversee the work of national financial authorities and manage the overhaul of international banking rules.

"Our reputation is quite solid; one of the reasons why [Mr.] Carney's name is being considered is because of that," Ms. Momani said.

Promoting the candidacy of Mr. Carney has been among Mr. Harper's priorities, said Mr. Lee. In the weeks leading up to the summit, Mr. Harper has been holding discussions with leaders from Germany, Chile, Brazil, Poland and the EU Commission, among others.

While these conversations included discussions on bilateral issues, according to releases sent out by the Prime Minister's Office, it is likely that Mr. Carney's candidature was also discussed, Mr. Lee said.

"I'm assuming he's trying to develop or enhance his relations with those leaders, because he wants them to support the candidacy of Gov. Carney to the Financial Stability Board."

He said having Mr. Carney become the next FSB head would be a great step forward for the world community.

"Aside from the fact that he has a first-grade intellect, an excellent education, and he has experience with the private sector ... he has the most important advantage of all that he's not American and he's not a European," Mr. Lee said.

"He's walked the talk, he understands what's going on out there in the private banking world, he gets it ... he doesn't have wobbly legs, he's going to stand up and say what he thinks is right and he comes from a country that didn't melt down or have bank bailouts in the last three years."