Ottawa’s about-face on stimulus spending

No longer solely pushing debt reduction

• Do as we say now, not as we said then.

The federal government has abruptly, and very publicly, changed its message on global recession fighting.

Instead of insisting other countries put debt reduction ahead of stimulus spending — Ottawa’s post-recession mantra — Finance Minister Joe Oliver has altered course, urging G20 nations — in the particular, those in the eurozone currency group — to open their fiscal taps to help restart the global recovery.

For now, and for many industrialized nations, deficit reduction will remain a work in progress.

That was the line G20 finance ministers took during their meeting last week in Cairns, Australia, and which Mr. Oliver heartily endorsed in talks with Canadian reporters.

Gone is the scolding tone of Prime Minister Stephen Harper and his previous finance chief, the late Jim Flaherty, who urged other governments to pay down their debt before adding to it through huge fiscal measures that could only delay the inevitable pre-recovery pain.

Mr. Oliver, 74, who was named finance minister in March, took a much different tack in Cairns, joining his G20 colleagues in endorsing a “timely, targeted program which is temporary and where a creditable plan to achieve a fiscal balance is set out and pursued when the need for a more stimulative program becomes less important.”

“It’s not an ideological approach. It’s a pragmatic approach.”

In other words, spending now has to be cranked up to fund infrastructure projects, along with other efforts, to create many more jobs for the global economy.

“They’ve changed their tune, for sure,” said Christopher Ragan, a professor of economic policy at McGill University in Montreal.

“Here it is, a government that is preaching restraint of its own, but now preaching stimulus elsewhere,” Mr. Ragan said. “I’m not actually opposed to that. I’ve thought for the past five years that Europe needed fiscal stimulus. It’s not that [Mr. Oliver] is saying the wrong thing to Europe, he’s finally saying the right thing to Europe.”

Avery Shenfeld, chief economist at CIBC World Markets, said “it does seem that the current Canadian finance minister has a different message for Europe than his predecessor — calling for stimulus instead of restraint.”

“We’ve seen similar calls from places like the IMF to lighten up on fiscal policy as part of getting the economy going. And it’s the right advice.”

Douglas Porter, chief economist at BMO Capital Markets, said it is “somewhat striking how the stance has changed over the years.”

“I can vividly remember a few years ago that Canada was taking the position of basically admonishing the rest of the world to get their fiscal house in order. And that was almost seen as the No. 1 issue to get government finances back in pre-recession shape. I always thought that was a debatable point to be making,” Mr. Porter said.

Mr. Flaherty “used to lecture the Europeans to get control of the situation.”

“Effectively [Ottawa] went from a balanced budget to a $50-billion deficit within about six months,” Mr. Porter said.

He said that Mr. Flaherty used to talk about “getting control of the sovereign debt crisis. But it wasn’t obvious how they could have achieved that. If there was an easy answer they would have found it.

“At the height of the debt crisis in Europe, I can see how reasonable people would think we basically have to control the government finances, first and foremost,” Mr. Porter said.

“But given the plunge in interest rates around the world, most notably in Europe, in the last two years, I think the concern now is the extremely sluggish nature of growth almost everywhere.”

True, Canada was quick out the gate after the 2008-09 downturn. During that period, we recovered all the jobs lost during the recession, as the government is fond of reminding us. But employment growth has since weakened, in tandem with now-sluggish gains in the economy.

And while the United States is beginning to book some healthy quarterly numbers, the 18-nation eurozone — part of the overall 28-member European Union — is once again struggling. Italy, with an economy larger than that of Canada, is in its third recession. Even Germany contracted in the most recent quarter, while Greece continues to be crippled by debt after six years of negative economic growth.

“Back when we hosted the G20 in Toronto in 2010, Flaherty and Harper were standing up saying, ‘OK, it’s time to get back on a path toward balance,’ ” said Mr. Ragan.

“The truth is, based on information available at that time, that wasn’t a bad line. Since then, experience has shown that getting back on a path to balance was too soon.”

Mr. Porter said Europe is still going to grow almost 1% this year after two years of recession — “and that’s about what we thought would be the case at the start of the year.”

“But the bottom line is we can’t expect any miracles out of Europe.”

Pedro Antunes, deputy chief economist at the Conference Board of Canada, said there is always a risk of the eurozone losing a smaller member, such as Greece.

“I think there would be some hiccups and certainly some nervousness in the financial markets,” he said.

“We’re holding on to the hope that the U.S. consumer comes back in 2014 and 2015. We’ve seen solid evidence of that, “he added.

“That would help to drive and strengthen the global economy, and help Europe get out of this recession — at least see some positive growth.”