Step 1 in New Canada Financial Diplomacy: Preaching to Choirby
Rookie minister Morneau zealously touts government spending
Though U.S. and Japan are onside, Germany will be tough sell
Say hello to Bill Morneau, the Canadian who thinks he can convert the world to fiscal stimulus.
Only a few months into his job, the rookie at the table of global finance ministers has quickly put himself at the forefront as an advocate for more government spending to boost growth, spreading the message with missionary zeal.
It’s not enough that fiscal expansion is good for Canada, Morneau told reporters in Washington last week. The plan now is to convince others to follow suit, at least those with the fiscal room to do so.
“The next question is, ‘So what’s success?’” Morneau said at a press briefing Thursday ahead of meetings between the Group of 20 countries and International Monetary Fund. “Success is, ‘Can we convince other countries to increase their investment in infrastructure?’”
Up to now, it’s mostly a case of preaching to the converted. IMF Managing Director Christine Lagarde, maybe the world’s top advocate for active fiscal policy, singled out the country twice last week as an example for other countries to follow, a feel-good moment for Canadian economic diplomats starved of attention in recent years. Canada is also being urged on by the U.S. and Japan, who were fiscal-policy enthusiasts well before Morneau came along.
Persuading others, as the U.S. already knows, will be another matter.
For the Europeans, the big preoccupation in Washington -- once again -- was trying to sort out a Greek debt crisis now in its sixth year. Government expansionism has little resonance with them.
“Loosening fiscal policy would not help the euro area to return to stronger growth in the long run, as several member states still face substantial public deficits and high debt ratios,” German Finance Minister Wolfgang Schaeuble, the dean of Group of Seven finance ministers, said in a speech to the IMF Saturday.
To be sure, Morneau is talking with the confidence of a man with the wind at his back as he plunges Canada, the one-time ringleader for fiscal prudence in the G-7, into deficits. His Liberal government is basking in a honeymoon glow after winning power in October, remaining at peak popularity at home despite budgeting deficits that exceeded initial promises by about C$100 billion ($77 billion). Bank of Canada Governor Stephen Poloz is endorsing the additional fiscal stimulus as an appropriate response to a country suffering from the oil-price collapse.
Trips to New York and London to meet investors after his March 22 budget have been largely received with accolades and open wallets.
In U.S. dollar terms, Canadian government debt has returned 9 percent so far in 2016, or an annualized 35 percent, compared with a return of 3.7 percent for U.S. Treasuries. The S&P/TSX Composite Index remains one of the best-performing developed markets in the world this year with a 5 percent gain.
The message is also coming at a time when policy makers are scrambling for ways to boost sluggish global growth. The IMF began last week’s meetings by cutting its growth estimates for the global economy, and there are new threats on the horizon including the U.K.’s potential exit from the European Union.
The big question is whether Canada is a harbinger of things to come, or just an exception -- simply an example of a government cashing in on hard-fought efforts by previous administrations to rein in the nation’s debts.
Morneau, who said last week’s meeting in Washington would be a sort of coming out party where he would become more assertive, acknowledges that he’d be satisfied with more modest gains at the global level.
“If we can encourage other countries not to decrease the amount of investments they make in the economy -- because some countries might be going in that direction -- that might be interim success,” he said.