At a reception in Ottawa on Wednesday, German Chancellor Angela Merkel said that the euro zone should look to Canada for inspiration on how to deal with its ongoing debt crisis. According to Bloomberg, she hailed Canada’s efforts to trim its deficits and practice fiscal discipline, saying, “This is also the right solution for Europe.”
Well, who doesn’t love Canada? Yet some economists have argued that Canada’s efforts to tame its budget deficits in the 1990s don’t necessarily offer good lessons for the euro zone today. The situations are far too dissimilar.
On the surface, its easy to see what Merkel finds appealing about Canada’s experience. Back in 1993, the country had the second-highest debt-to-GDP ratio of any G7 country, behind only Italy. So the Canadian government, led by Liberal Prime Minister Jean Chrétien, embarked on a sharp program of fiscal austerity, chopping public budgets and reining in government debt. Budget surpluses were appearing by the late ’90s. Canada’s economy grew rapidly. U.S. newspapers no longer referred to Canada as a basket case. All was well in the land of Mounties and ice hockey.
Note EU-Digest: in general one could also argue that the EU should try and be a bit more like Canada, but unfortunately except for some politicians like Mrs. Merkel, who are more visionary oriented, it probably would be very difficult to materialize.
Read more: Merkel: Europe should be more like Canada! Is that realistic?
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