Ottawa to provinces: Heed the lessons of Europe

Finance Minister Jim Flaherty is urging his provincial counterparts to heed the lessons of Europe and keep tightening their budgets as he seeks to keep Canada's debt-to-GDP ratio the lowest in the Group of Seven rich nations.

In remarks summarizing a conference call he held with the provincial ministers on Wednesday, Flaherty warned on Thursday that the domestic economy could be hurt by the European debt crisis and the stalled U.S. economy.

"I recognized my counterparts for their work in controlling expenditures and reducing their deficits, while reinforcing the need for all governments in Canada to maintain that focus," Flaherty said in the emailed remarks.

"We see the lesson in Europe if public finances are not sustainable and budgets are not balanced," he said.

Canada's federal budget deficit amounts to about 1.5 percent of gross domestic product and is on track to be eliminated by 2016. But the economically and politically powerful central provinces of Ontario and Quebec are grappling with more serious shortfalls.

Canada's general government deficit, which includes provincial and local governments as well as state pension plans, is roughly 4 percent of GDP.

The International Monetary Fund forecasts Canada's net debt-to-GDP ratio will fall to 33.3 percent in 2016, which would still be the lowest in the G7, ahead of Germany.

Flaherty repeated his call for euro zone leaders to quickly implement their plan to resolve the debt crisis, saying that otherwise Canada's economy would take a hit.

"Finally, we discussed the continuing slowness in the United Sates economy and the effect it could have in Canada," he said.

The federal and provincial finance ministers usually meet in person every summer. Flaherty said their next group meeting would be in December.