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February 10, 2010

Harper at Davos

The Canadian Charger

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Prime Minister Harper's remarks, during his speech at the Davos World Economic Forum (WEF), on how to lead the world economy out of its greatest crisis since the great depression, put him at odds with other world leaders such as U.S. President Obama and French President Sarkozy.

After Mr. Obama unveiled new rules for U.S. banks that would restrict their size and forbid them from certain business practices, Mr. Sarkzoy opened the Davos WEF with a speech telling the G20 to stop tinkering with arcane regulations that will deal only superficially with what caused the global financial crisis.

However, Mr. Harper, ever the ideologue who has never encountered a situation he couldn't impose a preconceived notion upon, strongly rejected recent policies from Washington, London and Paris to curb banks with taxes and stricter regulations, characterizing these regulations as excessive and arbitrary.

He said G20 countries need to get on the same page when it comes to cracking down on banking activity, implementing stimulus programs and designing exit strategies to eventually reduce debt.

"In fact, if inadequate regulation is not addressed, I believe the consequences could actually be worse than before this crisis."

Canada's banking regulations strike the right balance between controlling bad  behaviour and allowing financial institutions freedom to grow, he said.  Experts say Canada's regulatory system which discourages reckless lending and encourages banks to maintain high levels of reserves, but doesn't micromanage investments or salaries, is partly responsible for Canada avoiding the severe losses U.S. banks suffered in the financial crisis.

However, none of the reforms proposed so far in the United States or Europe mirror Canada's system.

Canada's different stance threatens an earlier agreement among the major G20 countries to work in unison to implement a common set of rules that would govern financial institutions.

Moreover, Mr. Harper seems to be suggesting that Canada' s position is the correct one and dissenters such as Washington, London and Paris should get onside.

“Our system is based on good and active regulation but not on excessive regulation,” Mr. Harper said. “That's the approach we'll be talking about and that we'll be encouraging among members of the G20.”

However, the difference in positions between Canada and the other above-mentioned governments is significant enough that a great deal of work will be required to reach a consensus. Liberal MP and international trade critic Scott Brison, who is also in Davos, said Mr. Harper's approach contrasts sharply with Mr. Sarkozy's .

“Harper has been consistently opposed to the kind of strong regulatory framework that helped prevent Canadian banks from being sucked into the vortex of the global financial crisis,” Mr. Brison said. “It will be important to develop regulatory frameworks multilaterally.”

Although Mr.  Harper's views are not in sync with some other world leaders, they do concur with those of some of Canada's top bankers.  Gordon Nixon, chief executive of Royal Bank of Canada, said global coordination to work on a certain set of standard set of rules – such as the amount of capital banks should hold on their balance sheets – appears to be collapsing.  He added that this sparks uncertainty that is not good for markets.

In his speech Mr. Harper urged countries to keep up with their stimulus programs, despite mounting deficits.

"We believe it is important to stay the course. But, only for now," he said.

"But, while it is absolutely too soon to abandon stimulus programs, it is no longer too early to start thinking a strategy to exit them."

He warned, however, that the global recovery is tentative at best.

Having already said that at the G8 Summit in Muskoka, in June, Canada will champion the cause of improving the health of pregnant mothers and children – one of the millennium goals the United Nations set in 2000, with little progress to date, Mr. Harper told the Davos Forum that at the G8 and G20 summit that will follow in Toronto, he will call for countries to live up to the promises they've already made on aid and financial reforms, rather than start making new ones.

Presumably the promises Mr. Harper will pressure other G20 countries to live up to will include the tens of billions of dollars other G20 summits have committed countries to finding to finance adaptation efforts for emission reductions that will inevitably be required in developing countries.

However, Mr. Harper skimmed over climate change - a topic his own officials have acknowledged will have to play a central role at both the G20 and G8 summits - mentioning it only once in his speech in Davos.

Many countries are pushing Canada to use the two summits to put some momentum behind the emissions agreement-in-principle reached in Copenhagen in December.

While neither the G8 nor the G20 can officially put that agreement into practice, the Canadian summits are important gatherings that could add the momentum needed to make the Copenhagen accord binding, Canadian officials have said.

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