Jim Flaherty VERBATIM Canada: “Punching above our weight” At the 79th annual Couchiching Conference, Finance Minister Jim Flaherty delivered a remarkable keynote address in which he shared anecdotal and analytical details of how Canada has come out of the deepest downturn since the Great Depression in better shape than any other G7 country. “By any economic indicator,” he said, “Canada is punching above its worldwide economic weight class.” Le ministre canadien des Finances Jim Flaherty a prononcé un remarquable discours à l’occasion de la 79e Conférence annuelle de Couchiching. À l’aide de données et d’anecdotes, il y décrit comment le Canada est sorti de la pire récession depuis la Grande Dépression en meilleur état que tout autre pays du G7. « Selon tous les indicateurs économiques, a-t-il expliqué, le Canada est maître du ring dans sa catégorie de poids. » here is the story of the old col- ing above its worldwide economic subprime mortgage crisis in the United lege graduate in economics who weight class. States. By the middle of the next year, T went back to his alma mater to It brings me particular pleasure to certainly by October 2008, the crisis visit his son, who was following in his say this so soon after, to paraphrase the had grown exponentially and reached footsteps. The son was showing his theme of this conference, a watershed into the real economies. The world examination paper and the father was event for this country — that is, the eco- faced potentially the most serious eco- astounded to find that it was exactly nomic summits in Canada that brought nomic crisis since the Great Depression. the same paper he had sat for 30 years world leaders together to set a course for By later that fall of 2008, the full effects before. So he went to the head of the strong and sustainable economic of the crisis were being felt outside of economics department and confronted growth. Canada played a pivotal role in the credit markets as the recession hit him with the discovery he had just drawing out this road map to recovery, the real economies. made. “What kind of a department,” both in what we did to prepare for a Thankfully, in Canada we had pre- the man asked, “is this that sits the global crisis and the way we responded pared. We had run balanced budgets. We same papers, asks the same questions of when it arrived. It only makes sense then had paid off a massive amount of debt — students year after year?” “Well,” said for me to recount the extraordinary some $40 billion during our govern- the professor, “the questions don’t events of recent years at this forum that ment’s time in office since January 2006. change but the answers do.” was around during the last great global As the crisis intensified, we were on So if there’s one thing that crisis of this magnitude in the 1930s. the campaign trail for the federal elec- Couchiching has provided over the tion that was held on October 14, 2008. past 78 years or so, it’s just that: ver the past couple of years, we The election was ongoing. The econom- answers. And in doing so, your 2010 O have witnessed and, I believe, ic news was getting worse. Frequent dis- organizers, panellists and presenters, made history of our own. Just as this cussions were being held internationally. those here to observe, are acting in the institution has done, our nation has I was speaking often with my counter- best traditions of Couchiching — you once again answered the call in global parts, particularly in Europe and the are punching above your weight. efforts to make the world a more stable United States, with the G7, regarding Canadians, when they consider place for all. And if that isn’t a nation what should be done about a looming our nation’s economic performance, of 33 million punching above its serious recession, one that was not fore- both leading up to the crisis of 2008 weight, I don’t know what it is. seen by the economists. and after, have also been punching Now it is important to put the eco- In Canada, we took some immedi- above our weight as a nation. We just nomic crisis that the world has faced in ate decisions to help alleviate the trou- don’t like talking about it. I’ll break context, and I’ll try to do that fairly bles in credit markets. First, we decided with that very Canadian mould briefly. If we go back to August 2007, it that we would purchase CMHC- today. I will actually say it: by any was a time when the threatening credit insured mortgages to provide more liq- economic indicator, Canada is punch- crisis...manifested itself in the form of a uidity in the system. Second, we POLICY OPTIONS 7 SEPTEMBER 2010 Jim Flaherty VERBATIM decided we would guarantee the uments prepared by public servants in rized the Toronto accomplishments after wholesale debt of our banks to enable advance of meetings, and they’re rarely the summit. First of all — and this was them to have certainty as they lent to read — frequently published. In this not easy to obtain — firm targets for one another again, and to maintain a meeting, we actually tore it up, and that advanced economies on deficit reduction level playing field because other coun- was one of the most important things and reduced debt burdens. We agreed on tries were guaranteeing the indebted- we did. Leading up into that, we created specific targets: that is, countries would ness of their banks. a five-point plan. The five-point plan cut deficits in half by 2013 and stabilize I made that first announcement fundamentally was based on our agree- or reduce debt-to-GDP ratios by 2016. We on Friday, October 10, 2008, in the ment that we would not allow, as gov- reached an agreement to move forward morning in Ottawa. By that afternoon, ernments, any more banks to fail. on the second stage of mutual assess- I was in the Cash Room of the Treasury The next morning we met with ments each country will undertake to Building in Washington with the other President Bush at 7 a.m. in the achieve strong, sustainable and balanced G7 finance ministers and central bank Roosevelt Room of the White House. growth. We agreed on higher and better- quality capital standards Our nation has once again answered the call in global efforts throughout the global finan- to make the world a more stable place for all. And if that isn’t cial system and an extension a nation of 33 million punching above its weight, I don’t of our shared pledge not to know what it is. introduce new barriers to trade over the course of the governors. And let me say I’ve been to He agreed to the plan on behalf of the next three years. lots of these meetings over the course United States. He went out to the Rose This continued collaborative, of four and a half years now. But this Garden and gave a press conference long-term approach coming out of the was a different kind of meeting. endorsing the plan. And on the Toronto summit makes for a future far Saturday we had meetings with the more hopeful than the treacherous he financial markets were teetering International Monetary Fund. Later in past we have just lived through. T with uncertainty. Hank Paulson, the afternoon, the Council of the who was the secretary of the treasury Finance Ministers of the Americas — ow of all the G20 countries, then, opened the meeting by saying, South America, Central America and N Canada has a particular reason for basically, We’re in a lot of trouble. Some North America — we met and we all post-summit optimism in my view. Our of the European ministers spent some endorsed the plan. And then that country has weathered the deepest, most time expressing some pointed opinions evening, on the Saturday evening in synchronized global downturn since the about the US financial system and its Washington, the G20. And President 1930s in far better shape than other contribution to the crisis, passing Bush attended for part of that meeting major industrialized countries. The around a graph, a one-page graph, that as well, and the G20 ministers endorsed decline in our economic output was the showed what had happened: the widen- the plan as well. So that by Saturday smallest of our G7 counterparts. Now, in ing of credit spreads dramatically since evening we had global economic agree- August 2010, Canada has virtually the failure of Lehman Brothers the ment on the five-point plan. recouped a recession’s worth of econom- month before. We then started the sequence of ic decline. With more than 400,000 jobs As a group, we realized the reality G20 summit meetings in Washington created since July 2009, we have also that some heavily leveraged European in November 2008, then in London in recouped all of the jobs lost during the banks were carrying toxic assets. Some April 2009, in Pittsburgh in September downturn. The IMF expects that Canada British banks had failed. Some US of last year and, as you know, in will be the fastest-growing economy banks had failed. Some German Toronto in June and in Seoul, Korea, among the G7 economies during 2010. regional banks had failed. It was later this year in November.