Harper Was Right to Say No to German Chancellor

By Stewart, Bruce | Winnipeg Free Press, August 25, 2012 | Go to article overview
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Harper Was Right to Say No to German Chancellor


Stewart, Bruce, Winnipeg Free Press


WHEN Angela Merkel, the German Chancellor, made her visit to Ottawa last week, almost the first words out of her mouth were a demand that Canada help fund the bailout of the eurozone.

Prime Minister Harper said no. Rightly so, too.

The next 12 months will be filled with demands Canada throw its money at problems in other countries. It's a path we should resist.

Citibank published a research report this week indicating which countries would be able to hold onto their AAA credit ratings in the next year. It's a very short list and we head it. There were no prospects the United States could hold its AA+ as is, much less return to AAA status. Nor Japan (AA-) or most of Europe (only Germany and the Scandinavian countries have solid prospects). Britain (still AAA despite its horrendous debt and deficit issues) was expected to cling to its rating as well, although frankly that seems self-serving on the bank's part.

Lower credit ratings means higher interest rates on debt. The first wave of this crisis, back in 2008, saw most countries -- including Canada -- run deficits to stimulate their economies, even while trying to impose austerity programs at the same time. We, and they, also dropped central bank interest rates to rock-bottom levels. We, and they, also shifted our debt to have far more short-term debt and less long-term.

But as the Spanish recently discovered, the central bank can say interest rates are whatever they like, but when it comes to placing the bonds to roll over prior debt, the market decides what it thinks they're worth. For the Spaniards, with an official European Central Bank rate of 0.75 per cent, the market said pay more than seven per cent or "no sale."

But before Canadians get too smug about an AAA rating, remember that's just for the federal government. Two provinces, Alberta and British Columbia, hold AAA ratings as well but Ontario's was downgraded in April to AA-, and both Ontario and Quebec are on credit watch by the ratings agencies. (The rest are Saskatchewan at AA+, Manitoba at AA, New Brunswick at AA-, Nova Scotia at A+ and Newfoundland & Labrador and P.E.I. at A.)

Lower ratings mean higher interest rates paid by the province.

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Harper Was Right to Say No to German Chancellor
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