OTTAWA – Finance Minister Jim Flaherty is optimistic the United States will avoid the so-called fiscal cliff that many believe could trigger another recession in the world’s largest economy.
Flaherty says he believes the congressional budget committee will compromise on the US$600 billion in tax hikes and spending cuts set to automatically kick in in January.
He says the hit to the U.S. economy would be substantial, and that there would be a knock-on effect in Canada as well.
Still, Flaherty says the new president-elect, whether it is Barack Obama or Mitt Romney, will need to show leadership to avoid catastrophe.
Meanwhile, Flaherty says he is not convinced that Europe has the wherewithal and the political structure to extricate itself from a long period of economic difficulty.
Flaherty, who will be meeting with his colleagues at the International Monetary Fund-World Bank fall meetings in Tokyo next week, calls Europe “the clear and present danger” to the global economy.
But he has not changed his mind about joining the IMF’s emergency bailout fund, despite being under pressure from colleagues to ante up.
Europe is rich enough to deal with its debt problems without the help of outsiders, he says.
Part of the problem is that Europe lacks a single finance minister to represent the entity, which makes speedy action difficult, Flaherty said.