Harper and the G20 tension between the U.S. and Europe

The notion of Canada occupying a middle ground between the United States and Europe is an old, familiar one, and usually rather flattering for Canadians. We’re supposed to blend European-style openness to government programs and intervention with an American-type instinct for letting free markets stay free.

But this comforting version of the Canadian political identity has seemed outmoded under Prime Minister Stephen Harper’s government, which feels so firmly anchored on this side of the Atlantic. Until this G20. Here in Toronto, the idea of a Canadian affinity for Europe has fresh relevance.

The reason, of course, is the debate over how far the G20 should go toward committing its members to targets on deficit and debt reduction. Harper has aligned himself with the Europeans by proposing that the G20 nations pledge to cut their deficits in half by 2013 and start reducing their debt-to-GDP ratios no later than 2016.

Now, his bid for clear benchmarks planted Harper squarely on the side of his fellow conservatives, notably Germany’s austerity-minded Angela Merkel and Britian’s David Cameron, who comes to the summit having just tabled a tax-raising, cost-slashing budget. It puts him at odds with U.S. President Barack Obama, who emphasizes the need to maintain stimulus spending in the face of a still vulnerable world economic recovery.

The Canada-Europe bridge is explicitly recognized in high places. Asked yesterday at a news conference about Harper’s suggested targets, José Manuel Barossa, president of the European Commission, said: “It’s very interesting. Why? Because it shows that this concern with fiscal consolidation is not just the concern of Europe.”

And Barossa predicted Harper’s position would find its way into today’s final G20 communiqué. “We expect the G20 to agree on concrete targets for deficit reduction and the stabilization and reduction of debt,” he said. “We want these targets to be credible and we expect them to be minimum targets.”

By his morning, however, the sense that Harper’s position is bound to carry the day is coming under question. Donald Brean, a finance and economics professor at University of Toronto’s Rotman School of Management, and calls the clash “texbook macroeconomics”—a matter of when to “slow the engines of stimulus.”

But beneath the technical matter of timing a contentious economic policy shift, Brean also sees a dense mesh of history and politics.

Relevant history: “The Germans are paragons fiscal probity because they’ve had two experiences in the last century of two totally destructive periods of punishing hyperinflation.” As for politics, he points to looming mid-term elections in the U.S. Congress, crucial votes this coming fall for which Obama’s Democrats need to keep the economy humming: “The Americans are worried, knowing they can’t raise taxes and they can’t cut spending in a mid-term year.”

If he is positioned between America and Europe, then, Harper is staking out a complex bit of real estate—where the last century’s European history, today’s global macroeconomic conditions, and next fall’s U.S. politics all intersect.

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