Greek Crisis Could Derail Canadian Economy

The Greek crisis has the potential to derail the global recovery and hurt Canada’s economy, Bank of Canada governor Mark Carney says.

The central bank governor called the sovereign debt crisis in Greece and other southern European countries a “serious situation” for both the world and Canada.

Testifying before the Senate banking committee Thursday, Carney says Greece’s problems could spill over and cause a slowdown in the global economy as markets demand governments rein in their deficits.

In Canada, that would result in higher interest rates.

A global slowdown would also cut demand for many of Canada’s resources exports to Europe and other parts of the world.

“The net result of this would be negative for growth in Canada,” he said.

Carney said June’s upcoming G20 meeting in Toronto will be critical in dealing with the problem, saying the key will be persuading emerging markets like China to boost its domestic demand.

That would increase demand for resources and goods produced in Canada and other countries and help offset a drop in demand from Europe.

Canada and most of the other industrialized world have been pressuring China and other Asian economies to allow their controlled currencies to appreciate in order to boost spending in those markets and curtail exports.

On Thursday, European and German officials assured markets they were working quickly on approving a bailout for Greece as they try to keep the country’s debt crisis from dragging others into a continent-wide financial meltdown.

European Union monetary affairs commissioner Olli Rehn said Thursday he was “confident the talks will be concluded in the next days.”

He said negotiators from the EU, the European Central Bank and the International Monetary fund were “working day and night” to finish details of a bailout that would avoid a wider crisis and “safeguard the financial stability in Europe and globally.”