by Simon Kent
Federal Finance Minister Jim Flaherty dropped the n-word last week and taxpayers across Canada should be glad he did.
The forum was an International Monetary Fund (IMF) meeting in New York. Its members had just tried, for the second time in eight weeks, to hit up Canada for a loan of, well, let’s just say it was something in the order of a lazy $7 billion or so.
True to his conservative financial instincts, Flaherty wasn’t having any of it. So he leaned forward and uttered a word now so rarely heard in global financial circles that many wondered if they’d heard him correctly the first time.
They had. He just said `no.’
In doing so he put Canada at odds with almost the entire membership of the G20. All members (bar the US) backed the IMF’s Christine Lagarde’s effort to raise more than $400-billion (U.S.) to build a financial buffer against the threat posed by the seemingly endless Eurozone debt crisis.
Flaherty’s reason for denying the IMF’s plea for funds is simple.
Until nations like Portugal, Ireland, Greece and Spain – to name just a few – take their fiscal settings off stupid and cease spending like drunken matelots, reduce their borrowings, trim inflated civil services and generally behave like grown-ups instead of spoilt children, Canada will deny the bailout funds everyone knows will just go into more profligate spending.
“They need to step up to the plate and overwhelm this issue with their own resources,” Flaherty said with considered understatement. “There are adequate resources in Europe to address these issues and they ought to be employed.”
Put simply, more debt does not solve a debt problem. Anyone in small business knows that.
If you walked into your local bank here in Canada as the head of a failing business and said you wanted to borrow more money to get out of debt you’d be laughed out of the building.
Flaherty would also probably concede in private that it’s pretty rich for the world’s wealthiest trading bloc to be asking Canadian taxpayers for a handout when the IMF was specifically established in 1945 to help developing countries.
That’s why it’s called the International Monetary Fund. Not the European Monetary Fund or the Save Failed Socialist Eurozone States From Themselves Fund.
Despite Canada joining the US in not giving in to the IMF’s entreaties, things don’t look like they’ll be getting any better any time soon. Just look at the early runoffs for the French presidency.
President Sarkozy, a staunch ally of German Chancellor Angela Merkel and her tough fiscal prescriptions for the eurozone, lost the first round of voting in his re-election bid.
Polls now show him losing the runoff next month to Socialist rival François Hollande, whose dewy-eyed rallying cry is an “end of imposing austerity everywhere, austerity that brought desperation to people throughout Europe.”
That’s right. Hollande wants to start spending again. To do that, no doubt he’ll be asking the IMF for money so he can hire more teachers, increase the size of the civil service and go on funding some of Europe’s more generous retirement schemes that for most government employees start at the grand old age of 53.
Here in Canada access to retirement benefits will soon officially start at the age of 67.
The French are not alone in wanting to borrow against the future of their children.
At the same time voters were exercising their fervent desire to reach for somebody else’s wallet, Irish voters announced they’d had it with the whole austerity caper as well. They want out and they want out now.
Marchers in Galway, Carlow, Wickford and Dublin gathered Sunday to voice their opposition to stringent fiscal cutbacks. Their government has been working to claw back spending but now voters and public sector unions have together decided they’ve had enough.
Other politicians in Europe are also taking heat from an electorate addicted to living off the largesse of free spending administrations.
Netherlands Prime Minister Mark Rutte resigned Monday after European Union demands for budget cuts to bring Holland into line with euro spending rules caused the collapse of his coalition government.
So the world is being held to ransom by eurozone countries that can’t borrow and spend quickly enough and treat the IMF as their national credit card provider.
Canada has successfully resisted two calls from the IMF for more money. There is another full meeting of the fund due later this year.
Canadians can only hope Jim Flaherty looks in the mirror every morning as he shaves and keeps practicing saying that n-word.
CANADA AND THE IMF
The International Monetary fund is one of the major institutions that grew out of the ashes of the Second War II.
Its aim remains to develop an effective monetary system in order to avoid a repetition of such economic crises as the Great Depression of the 1930s, which ruined millions of people around the world.
Canada was one of the first nations to join and was present at the first meeting in December, 1945. Today it is the eighth-biggest contributor to the IMF, after the six other G-7 countries and Saudi Arabia.
The IMF’s role is to oversees the economic policies of member states, provides economic and financial advice, and gives short- and medium-term financial assistance to countries facing balance of payments problems and other difficulties.
The IMF is funded by the annual contributions of its members according to their gross domestic product and adjusted every five years. The sums held by the fund – close to US$287 billion – are used to grant loans to members in financial difficulty.
The IMF is permanently based in New York. Its next major meeting is in October.
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