Identifier
Created
Classification
Origin
08OTTAWA1510
2008-12-03 16:00:00
CONFIDENTIAL
Embassy Ottawa
Cable title:  

BANK OF CANADA GOVERNOR ON G20 SUMMIT AND

Tags:  ECON EFIN CA ETRD PREL 
pdf how-to read a cable
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C O N F I D E N T I A L OTTAWA 001510 

SIPDIS

TREASURY FOR NEPHEW
STATE FOR E (SMITHAM),EB (GUEST),WHA/CAN, EBB/TPP/MTAA
PASS TO USTR FOR CARA MORROW

E.O. 12958: DECL: 12/01/2018
TAGS: ECON EFIN CA ETRD PREL
SUBJECT: BANK OF CANADA GOVERNOR ON G20 SUMMIT AND
INTERNATIONAL FINANCIAL CRISIS

REF: A. OTTAWA 1497

B. STATE 125609

C. OTTAWA 1502

Classified By: DCM Terry Breese, Reason 1.5 (B, D)

C O N F I D E N T I A L OTTAWA 001510

SIPDIS

TREASURY FOR NEPHEW
STATE FOR E (SMITHAM),EB (GUEST),WHA/CAN, EBB/TPP/MTAA
PASS TO USTR FOR CARA MORROW

E.O. 12958: DECL: 12/01/2018
TAGS: ECON EFIN CA ETRD PREL
SUBJECT: BANK OF CANADA GOVERNOR ON G20 SUMMIT AND
INTERNATIONAL FINANCIAL CRISIS

REF: A. OTTAWA 1497

B. STATE 125609

C. OTTAWA 1502

Classified By: DCM Terry Breese, Reason 1.5 (B, D)


1. (c) Summary: Bank of Canada Governor Mark Carney and
Deputy Governor John Murray told DCM and EMIN in a November
28 meeting that Bank officials were pleased with the G-20
Summit statement of principles. Carney stated that the
Summit had acknowledged the global financial system's
failures, and that President Bush handled the meeting well
with a sensible agenda and by setting tight deadlines. On
the Canadian front, Carney expressed guarded confidence about
Canada's financial and housing markets, even as he recognized
the overwhelming effect of Canada's close links to the U.S.
economy. End Summary


2. (c) Governor Mark Carney and Deputy Governor Murray told
DCM and EMIN in a November 28 meeting that Bank officials
were pleased with the G-20 Summit statement of principles,
especially in light of French President Sarkozy's and British
Prime Minister Brown's public comments before the November
14-15 meeting. Carney stated that the Summit had
acknowledged the global financial system's failures, and that
President Bush handled the meeting well with a sensible
agenda and by setting tight deadlines for follow-up action.
Carney said the Summit also found the right balance by not
redrawing the Bretton Woods institutions or creating new
international superstructures. Still, Carney said, he would
have liked more attention paid to immediate government
actions and he wished the meeting had had more real impact on
financial markets. (By contrast, Carney said, the November 8
Finance Ministerial in Brazil had been a "typical G-20
disappointment," with "posturing and adolescent requests"
from the major emerging economies.)


3. (c) Carney underlined the need for stimulus actions around
the world. He said central banks had been shoring up their
financial systems, but some countries probably needed to be
more aggressive. On the fiscal side, Carney said Canada

first proposed the idea that countries spend an average of
2.5 percent of GDP on stimulus packages (the IMF later
reduced the recommendation to two percent, Carney noted). He
said each country could adjust its stimulus actions depending
on circumstances. In Canada, for example, monetary policy is
"still working" and the Canadian government may look to the
Bank for more stimulus before taking additional fiscal
actions (ref c).


4. (c) Carney stated that while he was pessimistic in the
near term regarding the United States and Canada on the
economic front, he believed that the right structural steps
were being taken. Carney praised USG actions addressing our
problems, and expressed "tremendous faith in the recovery
powers" of the U.S. financial system. Unlike other
Qpowers" of the U.S. financial system. Unlike other
countries, he said, the United States would have a relatively
short -- though painful -- recovery period because it would
write off assets, recapitalize, and allow companies to go out
of business. Carney added that the Bush Administration had
excellent people in place who continued to make important
decisions. Carney also stated that President-Elect Obama was
putting together a formidable economic team and that he
(Carney) had "tremendous respect" for Treasury Secretary
nominee, Tim Geithner.


5. (c) Carney commented that the biggest issue in the U.S.
financial crisis may be the need to separate out "bad assets"


at financial institutions. In a perfect world, he said, the
TARP would both recapitalize financial institutions and deal
directly with bad assets, many of which are simply "terrible"
and highly leveraged. Carney said the example of creating a
"bad bank" at Citicorp was exactly the right idea.


6. (c) Looking ahead, Carney expressed concern that progress
toward resolving the global financial crisis could be
undermined by two broad trends: (1) a retreat from trade
openness, and (2) countries imposing capital controls. He
applauded USG actions to rally support against recent trade
protectionist measures (refs a, b) in Indonesia, Brazil,
Argentina, and elsewhere. Carney also stated that large
amounts of capital have been invested in Asian and Latin
American countries that these countries may look to keep that
capital at home, undermining progress made on the free flow
of capital over the last two decades.


7. (c) On the domestic economy, Carney indicated that Canada
was in relatively good shape with domestic consumption
growing (albeit at lower rates) and solid household credit
demand (credit card, auto financing, mortgages). He
commented that a few housing markets were "softening" (e.g.,
Vancouver, Calgary),but that housing was only a 0.6 percent
drag on the economy. Carney stated that Canada's mortgage
market was strong due to strong federal regulation and the
fact that most mortgages were fixed rate and were underpinned
by significant down payments or mortgage insurance from a
government-sponsored agency. Carney also noted that Canada
had never seen a refinancing boom because the cost of
refinancing in Canada is high compared to in the United
States.

Visit Canada,s Economy and Environment Forum at
http://www.intelink.gov/communities/state/can ada

WILKINS