Newspaper article The Canadian Press

Canada Not Immune to after Shock If Greek Crisis Escalates, Says Flaherty: Canada Not Immune to Greek Crisis: Flaherty

Newspaper article The Canadian Press

Canada Not Immune to after Shock If Greek Crisis Escalates, Says Flaherty: Canada Not Immune to Greek Crisis: Flaherty

Article excerpt

OTTAWA - Finance Minister Jim Flaherty is warning the Canadian economy stands to feel the tremors from the political and financial quake in Greece.

The increased alarm over possible after shocks from Europe follows a decision by the European Central Bank to cut off some troubled Greek banks over reports of a flight of deposits from the under-capitalized institutions.

About US$900 billion in deposits have fled Greek banks since the May 7 election, according reports.

Meanwhile, the lack of a functioning government has shaken confidence that the country will follow through on austerity commitments, or that it can even remain in the eurozone.

"These are not good developments, this can create a shock that will affect Canada," Flaherty told a Senate committee Wednesday.

"Our financial institutions have a limited exposure to the Greek banking system, but global banking is interrelated and shocks in the European banking system can have negative effects ... in the American banking system and have some effects on the Canadian banking system as well."

Flaherty said the best thing Canada can do to insulate itself is to maintain its fiscal discipline by reducing deficits, paying down debt and ensuring Canada's banks remain well regulated.

The minister did not speculate about how much of a shock would hit Canada's shores, but most analysts do not believe it would be as great as what occurred after the fall of Lehman Brothers in 2008 that touched off a global recession.

The Bank of Canada has named European debt as the number one risk to the global economy.

In January, the central bank estimated the unresolved debt issues were already costing Canada 0.6 per cent in economic output this year, or about $10 billion. The cost to the global and U.S. economies was pegged even higher, at more than one per cent of gross domestic product and 0. …

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