The debt problems plaguing a handful of major European economies are among the most pressing concerns for the global economy, Bank of Canada governor Mark Carney said Friday.
Carney told a House of Commons committee that it is critical that Canada reach out to its debt-stricken trading partners and work with them to build a more solid financial footing for themselves and the wider global economy.
"Since the biggest risks to our economy come from abroad, the bank must work with its international colleagues as they tackle the twin challenges of reducing excessive private and public debt," said Carney.
"This situation is most acute in Europe where credible national fiscal plans need to be supplemented by broader changes to European economic governance and fiscal arrangements."
The central bank governor said the European debt crisis has flared up at a time when global growth has slowed down. These combined conditions have subsequently caused headaches for financial markets.
"In response to uncertainties in Europe and the evidence of slowing global growth, equity and commodity prices have fallen significantly and financial market volatility has increased markedly."
"The spillovers to Canadian financial markets have been less pronounced, but are still notable," he said.
But Carney also warned that Canada should not get complacent about its own finances, particularly at a time when historically low interest rates remain in effect.
"Canadians are now as indebted as Americans and the British," said Carney.
"In an environment of exceptionally low interest rates, we must be careful not to repeat the mistakes of others who now face the challenges of simultaneously lowering unsustainable private and public debt burdens."
Carney and Finance Minister Jim Flaherty were called before the Commons committee in the wake of massive upheaval in world stock markets, which BNN's Martin Baccardax said have lost more than $6 trillion in value in the past two weeks.
Flaherty admitted to the committee that the ongoing global turmoil poses risks to Canada's economy.
"Last week and again yesterday, we saw extreme swings in global markets, reacting to ongoing events, fiscal challenges and concerns about the pace of the global economic recovery," Flaherty told the committee Friday.
"Canada is a trading nation with exports representing about a third of our economic output and the U.S. is our largest trading partner. As such, global economic turmoil in the U.S. and Europe will inevitably impact our existing trading relationships and our economy."
For now, Flaherty said the government continues to closely monitor the global economy, as it pursues a path of fiscal consolidation and restraint.
"While we should not understate the risks, Canadians can be confident that our country is well positioned to face global economic challenges as we have done successfully in the recent past," Flaherty said.
At Friday's committee meeting, Flaherty was asked if the government had a plan in place should the U.S. or Europe tumble into another recession.
He responded that the government would "act in a pragmatic way," if "dramatic deterioration" was to occur in the global economy.
With files from The Canadian Press
