ECONOMY

Chretien issues ‘wake-up call’ over return to high budget deficits

Canadian Prime Minister Jean Chretien yesterday warned the Group of Eight leading nations to «wake up» to the risks posed by the budget deficits many governments around the world are now incurring. Canada is the sole member of the group with a budget surplus and Chretien is due to make a presentation on the global economy to a G8 summit in Evian, France next Monday. «The preoccupation we’re having in Canada and that I’m having as prime minister is that I see a return to the situation that existed in 1991 and 1992 where everybody was getting deeper and deeper into deficit,» he told reporters in Athens, where he attended a summit between Canada and the European Union. «As a member of the G8 with a responsibility to analyze the situation, I say we have to wake up. I don’t want us to find ourselves back in the days of 1992.» Chretien – who usually shies away from making blunt comments about the economy – also said the G8 meeting had to discuss the problem of low growth rates around the world. The veteran Canadian leader is particularly worried by the size of the US budget deficit, which could hit $500 billion this year, and has exchanged barbs with the White House over his concerns. Asked whether he felt US President George W. Bush did not understand the dangers posed by increasing deficits, Chretien replied: «We’ve discussed this problem on the phone. This is part of a conversation I’ve had many times.» Canada’s economy is so tightly linked with that of the United States that it could not hope to survive unscathed if there were a major US downturn. Chretien fended off questions about whether it was wise to question the practices of Canada’s main trading partner and closest ally. «You have to be able to talk about the economy of the world and the most important economy is (that of) the United States,» he said. Chretien specifically mentioned Germany, France, Britain, Portugal and Spain as examples of those countries which had slipped back into deficit. Governments, he said, «should stick to this mentality, to try to aspire to balance the books. If not, you create problems for later» because increasing deficits create «a spiral which deprives you of the flexibility to do anything at all.» Although Chretien did not prescribe any remedies for those states with budget deficits, he noted Canada had eliminated its own deficit by slashing public expenditures in 1995. He also said Canada now had the only financially viable state-funded pension system in the world because of Ottawa’s decision to raise payments into the system. Chretien, who plans to step down in February 2004, said he had resisted the temptation to keep quiet about his worries. «I’m going in eight months. I could easily say to Canada, ‘Off you go ladies and gentlemen, I’m not the one who is going to pay,’» he said. «I believe you have to stick to the philosophy that the way to remain socially fair while being able to distribute the riches of a country is by first controlling your debts.»