Europe's Effect on Canada?

[TomF]

I am fascinated with what is going on in Europe right now and can't help but wonder what its effect on Canada will be.

If Greece leaves the Euro, collapses, etc., Spain might be next, possibly France, etc.

Besides the impact on imports/exports, does Canada have any money at risk if any of these countries defaults?
Perhaps through the IMF or World Bank, if Greece says "we will not honor our debts", does Canada have any funds on the table?
If so, shouldn't we withdraw them now, instead of continuing to put them at risk with a nation whose ability and intentions to repay debts are questionable?

[mode3sour]

Maybe Canadians should look at themselves right now instead of worrying so much about Europe? Higher debt than the Americans had pre-2008 and what exactly to maintain the current economy? All complaining about the higher MSRP's but I have yet to hear someone even realize that our salaries are even higher for the exact same reason!! Other markets are rushing to compete in the service sector and look out when the next generation enters the employment zone, because they speak fluent English this time. Globalization is about to really even the playing field, and maybe Canadians are pointing fingers at everyone else instead of trying to carve some kind of future in it. We could at the very least try to invest the oil royalties internationally like Norway does, instead of blowing most of it and giving away the rest on an annual basis. How can you expect our salaries not to freeze when the Americans are still paid 40% less now at par? How do you expect all the kids to get jobs when others didn't just party and sleep through school are ready to do it for a mere fraction of the cost? Greece had their heads in the sand for too long, and so do the average Canadians imo. It's a great time to be a business tycoon, or internationally savvy, or a country that has a plan beyond the next election..

[OhGreatGuru]

I don't think we have any serious money "on the table" in the EU, in the sense of propping up EU members or their financial institutions. I think it is more a question of secondary effects to stock markets, global bonds, and our exports if the Euro drops, the EU contracts, and possibly some members like Greece default on their loans. But I stand to be corrected.

[kcowan]

You have to look at what all the pension and other funds have at risk in Europe. I suspect it is substantial. IOW I do not see us avoiding a hit. And we have known this for at least a year.

[Spidey]

I asked exactly the same question to someone who understands these things far better than I do. Canada does not have a large direct financial connection to Europe. The problem, however, is that the US does and Europeans hold a lot of US debt and securities. So if there is a European financial crisis, Europeans will require liquidity to pay off debts and start dumping US debt and assets.

This will lead the US to do the same with their trading partners. Canada has a strong connection to the US. And the spiral continues. . . . .

[LondonHomes]

It's a global economy, so what happens in every country impact Canada, however, most of these impacts or localized within the Canadian economy. In the case of Greece it will have little direct impact.

The problem however, is that a Greek default could cause a ripple effect on the rest of the PIGS and put the EU back in recession or worse. An EU recession would have a significant impact on the Canadian economy.

However, Canada itself has little money on the table.

[jet powder]

I think Europe is a prime example of why I would not trust any goverment bonds including Canadian bonds. Goverments spend beyond their means to get the votes. When a depresion hits taxes wont be raised to pay back bond holders as most think because it will be political suicide & who will be working in the private sector. History shows countries always default & @ somepoint the Canadian goverment will default on its bonds. The landlords (natives) goverment workers i.e, police will be paid before the bond holders @ some point in the future. Its not a matter of if but a matter of when. Bonds legalized theft.

[HaroldCrump]

When a depresion hits taxes wont be raised to pay back bond holders

Taxes can, and will, be raised regardless of economic cycle.
They are just not called taxes.
They are called things like "eco fee", "health premium", "carbon credits" or some such fancy terms.

As for govt. bonds, the issue is not outright default, but a gradual chipping away at the buying value via inflation.

[The Happy Wanderer]

As other people have already pointed out we live in a global economy whether we like it or not. In the grand scheme of things, if Greece did default or leave the EU, theoretically speaking it shouldn't really have that big of an impact as Greece has a relatively small economy/GDP. However you cannot dismiss the significance of it symbolically. The other issue is that Greece has received hundreds of billions of euros in bail outs already. The IMF, ECB, and other countries took a massive 50% write off on a large chunk of that bail out money. Its like one big game of dominoes.

As far as Canada is concerned, technically speaking we don't have that much invested in the EU in terms of bail out money etc, but our world works on a consumer basis. If the EU suffers and they stop consuming/spending that will have a massive impact on not just Canada, but the USA and China/Asia. And considering Canada's economy for the most part is tied to our natural resources...

The biggest problem right now is definitely Spain. They have an adult unemployment rate at 24%, youth unemployment (ages 16-24) at closer to 45%, a housing market that is in a worse position than the United States was during 2008...National debt level closing in on 900 billion dollars, 10 year bonds are approaching 7%...and many of their biggest banks need bail outs ASAP. Except the problem with the EU is that Spain cannot just start printing money like the United States. Because they don't have a federal reserve. That rests in the hands of the IMF and the European Central Bank. The last thing Germany wants is for the EU to start printing money. For as we all know, low interest rates + federal reserves printing money like its going out of style=inflation.

And inflation is already here. I think that is Canada's biggest risk moving forward. Inflation plus household debt mortgages included. What do you think would happen if inflation rose rapidly and the Fed had to raise interest rates...even to just 5-7% level. Think that's impossible? Think back to the early 80s. Interest rates reached upwards of 20%. If we even come to close to half of that or even a third of that...can you say boom goes the dynamite?

Just a couple interesting tidbits:

Canadian banks received upwards of 100Billion from the government during the credit crisis.

http://www.cbc.ca/news/business/stor...lout-ccpa.html

"At some point during the crisis, three of Canada's banks — CIBC, BMO, and Scotiabank — were completely under water, with government support exceeding the market value of the company," Macdonald said.

"But Canadian lenders also dipped into a program set up by the U.S. Federal Reserve aimed at providing cash to keep American banks afloat. CIBC and BMO took almost $3 billion each out of the fund, RBC and TD took out $8 billion and Scotiabank drew down almost $12 billion, the CCPA report found."

"That data came from the U.S. Federal Reserve, which released it publicly. But Macdonald's analysis found that Canadian banks got a comparable amount — $41 billion — from Bank of Canada facilities, an agency that has been far less transparent in sharing information"



And looking at what each citizen owed if we break down the national debt.

Canada=$16,869 (note this is just the Federal gov't, does not include provincial debts, Ontario's is over 260 billion alone; ouch!)
http://www.debtclock.ca/

The good old US of A national debt stands at around 15.75 trillion. That breaks down to around a mere $50k per person.

And Spain stands at about $19k per person.

Lets hope that the EU can get itself out of this recession and that China's economy is able to remain in positive territory.