Canada is urging the euro zone to embrace a common bank-deposit guarantee as a concrete step to boost market confidence.
The stand – confirmed Friday in a speech by Finance Minister Jim Flaherty – provides the first specifics as to what Canada will push for next week when Prime Minister Stephen Harper and Mr. Flaherty attend the G20 leaders’ summit in Los Cabos, Mexico.
In his speech in Ottawa, the minister praised a proposal from Mario Draghi, the head of the European Central Bank, who has called for a fund to guarantee bank deposits in the 17-member euro zone.
“I agree wholeheartedly,” Mr. Flaherty said. “This is the kind of action that the Europeans have not taken in the course of the past three or four years.”
World leaders will arrive Sunday evening in Los Cabos as results will be coming in from the Greek election, a vote that could have major implications for the future of the common currency zone.
Italy and France support the idea of a common bank-deposit plan, but Germany – the largest economy in the euro zone – appeared to reject quick moves toward deeper financial integration earlier this week.
In a speech to Germany’s parliament, German Chancellor Angela Merkel said proposals for “miracle solutions” are counter-productive, comments that were interpreted as a rejection of a common deposit guarantee or joint euro bonds.
Mr. Flaherty said European leaders should look to the big moves taken by the United States in 2008 as an example of the size of action that is needed in order to “overwhelm” a financial crisis.
“You’re not going to have economic growth unless there’s market confidence. You’re not going to have market confidence unless you have a solid fiscal plan that’s credible and believable by the markets. And that’s where we have been encouraging our European colleagues to go,” he said.
Jim Haley had an inside view of G20 machinations while representing Canada at G20 working group sessions during his time as a senior official with the department of finance. The career public servant – who has also worked for the Bank of Canada and the International Monetary Fund – left government last year to become a director of the Centre for International Governance think tank.
He argued in favour of a euro-zone-wide deposit protection system in a report earlier this month.
“They need to do something,” he said. “At some point, they’ve got to get ahead of this and I think that’s where the minister’s going with his comments … They have to give clear, credible commitments that they are going to solve this.”
While the European crisis is expected to dominate the G20 leaders summit, U.S. officials told reporters Friday they don’t expect concrete solutions to emerge in the next few days. They note that only some members of the euro zone are in the G20, so the U.S. will be looking for a sense of direction from the G20’s European representatives.
“This is an opportunity – and we’ll be encouraging them to take this opportunity – to lay out a vision of where they want to take Europe and the euro zone going forward, and how they want to address these issues,” said Michael Froman, a senior economics adviser to President Barack Obama. “But this is not a meeting where we expect them to come and make decisions for all of Europe.”