Economic Crisis

Canada’s aggressive G20 stance – austerity and no bank tax

Since 2009, the G20 has taken upon itself the role of manager of the economic crisis.  Taking the opportunity as host country, the Conservative government has been extremely aggressive in pushing its agenda to the top of the G20 summit program.   There have been two main tracks to the Conservative government’s approach to the economic discussions:

Deficit cutting through economic austerity. Canada has been leading the charge to make coordinated reduction of spending amongst the G20 countries the number one issue at the summit.  The government sees it as the means to get the fiscal house in order and to signal to the market that economies are strong.  “Our intent [at the G20] is to get a clear agreement on the principles needed to achieve real progress on reducing deficits and debt burdens” remarked Canadian Finance Minister Jim Flaherty. “In Toronto we will push for clear, credible, concrete, timely fiscal consolidation plans.”

However, Nobel economist Paul Krugman points out that, regardless of political ideology, the current period of high unemployment is clearly not a time for governments to become deficit warriors. The proposed Greek-style austerity cuts in spending will likely depress the global economy even further and reduce the tax base, deepening the recession.  Some prominent economists have even argued that this will lead the global economy to a new Great Depression.

Also, the austerity simply hurts poor (working or unwaged) and middle class people, and we can not lose sight of that. Having started with Greece, it seems that the plan is to go country by country, one-by-one, and force these measures which will diminish social programs, decimate the public sector and dramatically increase poverty and unemployment.

Narrow economic reforms and no bank tax The Harper government wants adjustment of bank capital and leverage standards* to be the sole focus of the G20’s efforts to reduce risk and increase bank solvency.  Yet, these reforms are not nearly enough to dissuade banks from taking on toxic assets. As Bill Greider wrote in the Nation last year, banks found ways around the rules even as capital and liquidity requirements were put in place over the past 20 years, and where they couldn’t, credit just went to unregulated ‘money-pots’ outside the banking system.

The Canadian government has also vociferously opposed the various bank tax and levy schemes that are considered by numerous social justice organizations and many countries to be a much better means to dissuade banks from taking on risk.  [Bank tax and levy primer] The government spent three months on a major offensive to dissuade other countries from supporting any form of tax or levy, despite the fact that it could raise billions for social spending while at the same time curbing risky, speculative bank transactions which were at the heart of the economic meltdown.

Much of the government’s supposed clout on the issue has come from the claim that Canadian banks didn’t need a bailout at the start of the economic crisis, and thus, it would be unfair of the Canadian government to tax them to pay for others’ riskiness.  But Canadian banks were, in fact, bailed out. Despite a media near blackout, there is ample evidence that the Canadian government bought up $70 billion in risky mortgages and created a $200 billion fund called the Emergency Finance Framework to insure banks when they need it (here and here, for example).

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