Flaherty tells of eurozone talks, surprising some G7 counterparts

Ottawa disclosed that the finance ministers and central bankers of the G7 group of advance economies held emergency eurozone talks on Tuesday, even though it would have been up to the U.S. to make such an announcement, the Financial Times reports:

“Although there was no official announcement of the call, it was disclosed by Jim Flaherty, Canada’s finance minister, in Toronto.


In Germany, an official said it was up to the US – as G7 chairman – to make any formal announcement. Government sources cautioned against exaggerating the importance of such a call, however, saying that it was normal for the G7 ministers to consult each other in the run-up to a G20 summit.”

Flaherty warned that some European banks are “undercapitalized” and European leaders have so far failed to build an “adequate firewall” to protect against such weaknesses. Prime Minister Stephen Harper urged action against troubles in the Eurozone on Tuesday, during an interview with CBC’s The National.

After Greece’s inconclusive elections last month, attention in Europe has shifted to Spain, whose banks are seeing a dearth of funds as some investors are moving their assets to safer institutions. The trouble started during the financial crisis, when some of the country’s lenders found themselves in dire straits after a housing bubble there went bust. By some estimates, it would take as much as $155 billion in fresh capital to restore the stability of the country’s financial system.

Jittery financial markets are asking an ever-higher premium on Spanish government bonds, close to seven per cent, the level that triggered bailouts in Greece, Ireland and Portugal.

Spain, Italy and France favour forming a banking union among eurozone economies, which they say would defuse the crisis. Berlin, however, has so far opposed the idea, fearing that German savers would end up financing the profligacy of Southern European countries.