It's Harper vs. Europe at the G20

What’s behind Stephen Harper’s refusal to pay into an European bailout fund? John Geddes explains

Just say non

Christinne Muschi/Reuters

On the international economic stage, Canada is usually cast in the supporting role of the reliable consensus-seeker. But when he joins the leaders of the world’s major economies next week at Los Cabos, Mexico, for what is shaping up as a high-pressure G20 summit, Prime Minister Stephen Harper will be playing a less familiar part. Harper’s refusal to contribute to an International Monetary Fund plan to help stabilize Europe’s economy has been described by a major ally as “irritating” and slammed by a former top federal Finance official for jeopardizing hard-won Canadian credibility when serious economic challenges are up for discussion at the highest levels.

The fact that Canada was holding out, along with the U.S., as the IMF sought more resources in the face of Europe’s prolonged crisis has been a simmering issue for months. Only recently, though, has it shifted from being a topic of arcane debate among international affairs wonks to fodder for loud partisan slanging on Parliament Hill. When Thomas Mulcair voiced support for the IMF plan last week, the Conservative attack machine suddenly revved up, and a succession of Tory MPs took turns denouncing the NDP leader for asking “Canadians to tighten their belts so they can hand out billions of dollars to Europe,” in the process putting “a huge burden on the economy here.”

That characterization did not, needless to say, match the IMF’s preferred description of its strategy. Since last year, IMF head Christine Lagarde has been travelling the world, seeking more than $400 billion in new support to draw on if needed to shore up Europe’s various troubled economies. Almost all of the G20’s members, from Australia to Japan, are expected to confirm pledges to Lagarde’s kitty when they gather at Los Cabos. But Harper expressed stern skepticism about putting Canadian money into any eurozone bailout at last spring’s G20 meeting in Cannes, France. Since then, he and Finance Minister Jim Flaherty have consistently argued Europe is rich enough to solve its own problems, and the IMF’s proper role is to support poorer countries.

Yet Lagarde seemed to hold out hope that, once enough European money was firmly committed, Ottawa would eventually come aboard. “I say that Canada is a long-standing member of the IMF, has always been a very active partner in the multilateral framework,” she told CBC back in February, “and I remain convinced it will want to play its role.” That made a certain strategic sense. After all, Harper has been willing to take international criticism for his controversial stances on hot-button issues like climate change and the Middle East, but on economic matters, he has positioned his government as a constructive, mainstream player.

Instead of coming around, though, he has backed further off from the IMF as the G20 summit approached. And his tactical bid to score domestic political points by slamming the NDP’s pro-IMF stand appeared to rule out any late reversal.

Scott Clark, Canada’s former IMF executive director and a retired deputy minister of Finance, said the Conservative portrayal of the IMF plan is a distortion. He said Canada is being asked to lend the IMF extra money out of the Bank of Canada’s ample foreign exchange reserves. “By refusing to join the G20 initiative to augment IMF resources,” Clark wrote on his 3D Policy blog, “Canada’s credibility in the G20 will be seriously diminished.”

But some other experts sided with the government. “Europe does not need a financial contribution from Canada to solve its problems,” said Queen’s University business professor Louis Gagnon. Laurence Booth, a professor at University of Toronto’s Rotman School of Management, agreed, arguing any IMF help that seemed to be for fragile European countries like Spain or Greece would in fact mainly benefit German and French banks that loaned them money in the first place.

Perrin Beatty, president of the Canadian Chamber of Commerce, broadly supports the government’s position on the IMF, at least for now. But he also stressed that the big question marks looming over Europe also pose a threat to the global economy, Canada included. Will a recent European Union package turn out to be enough to restore market confidence in Spain’s vulnerable banks? How will markets react if the Greek election on June 17—-the eve of the Los Cabos summit—-elects a leftist government that rejects the existing EU bailout and austerity plan for Greece? Beatty suggested any further severe setbacks in Europe might prompt Harper and Flaherty—and others—to think again. “If the situation were sufficiently serious,” he said, “you’d see all sorts of countries taking a fresh look at all sorts of issues.”

No matter what happens next, Canada’s relations with Europe have been strained. Germany’s ambassador to Canada told the Globe and Mail the Harper government’s IMF stance is “somewhat irritating and somewhat disappointing.” Both Harper and Flaherty have chided Europe for not grappling more resolutely with serial sovereign debt crises. The superior tone can’t be very welcome. “Inevitably, Europe is feeling tender right now,” Beatty said. “Their attitude is that if anyone wants to offer them anything, it’s not advice but money they want.”

John Curtis, a senior fellow at the C.D. Howe Institute in Toronto, and a former top economist and trade official in the federal government, said a key underrated factor behind Canada’s position is probably North American solidarity. President Barack Obama has also declined to give the IMF more resources to grapple with Europe, possibly because the U.S. Congress would fight any such move. “I suspect,” Curtis said, “we’re playing our traditional role of not wanting to leave the Americans exposed.”

Still, he added that Harper will need to find a way to look more supportive toward Europe before too long. The difficult last stages of negotiating a Canada-EU free trade agreement are now underway. While Curtis said Harper is unlikely to try launching any significant Canadian overture toward Europe at Los Cabos, more subtle hints of a future relationship-mending bid are possible at the summit. “Harper can say, ‘We’re flexible’—he doesn’t have to say much more,” he suggested. “Even if he says that, that opens a crack.”

On the other hand, Curtis noted that Harper hasn’t betrayed much indication in the past that he’s uncomfortable being at odds with many European governments. Late last year, for instance, Canada’s opposition to extending the Kyoto Protocol drew heavy criticism at the United Nations climate change conference in Durban, South Africa. And Harper’s staunch support for Israel in voting at the UN has set Canada apart from old allies. “I suspect he’s not the most popular guy at the table,” Curtis said. “But he’s not too worried—that’s the kind of guy he is.”