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European Crisis high risk to the Canadian financial system?

December 6th, 2012 - In its semi-annual Financial System Review the Bank of Canada ranks the European debt crisis as "very high" risk to the financial system.

Our expert Dr. Patrick Leblond disagrees and explains: "The risk for the Canadian financial system, as indicated in the Bank of Canada's latest Financial System Review, is that the European debt crisis, which is also combined with a banking crisis in countries such as Spain and Ireland, might lower demand for Canadian goods and services and therefore contribute to putting downward pressure on the growth of the Canadian economy, which would in turn affect the profitability of Canadian banks as there would be less demand for loans from Canadian business. Furthermore, the fragility of the European banking system as a result of the debt crisis could potentially reduce liquidity in the global financial system and, therefore, make the cost of capital higher for Canadian banks, which again would hurt their profitability. These are the two ways that the European crisis would hurt the Canadian financial system. However, these indirect risks between the crisis and the Canadian financial system remain small in comparison with the potential fiscal difficulties south of the border."

Furthermore, Dr. Amy Verdun comments: "The crisis in Europe is still being discussed and sorted out. There has been some good news in the last few weeks, and it seems that Europe is on the right track. It does still face lots of problems especially in the real economy (high unemployment and low growth or recession) which means that Europe will still be facing challenges as we move into 2013. It has been strange that the Canadian government has been so adamant to point to the fact that it would not want to help Europe out (via the IMF) should it be necessary, whilst at the same time (seeing this news) recognising that what happens in Europe will have a direct effect on Canada if it is large and nasty."

Against but in favour of European integration - The Dutch Paradox

November 29th, 2012 - Over the past few years The Netherlands seemed to have become the most "obstructive" EU member state. The Netherlands might not be the only one. Given the country's historical role as one of the EU's founding nations and long term supporter, it is important to know whether the Dutch are indeed turning their backs on the EU ­ and if so, why.

Adriaan Schout, a political analyst and expert, is visiting University of Victoria and available to media for interviews this Friday, November 30th. In his opinion

"The anti-European sentiments in The Netherlands were highly misread by journalists and politicians all over the world. The Netherlands has been, ­as always, pragmatically in favour of European integration and has been constructive in finding solutions for the EU crisis.

Yes, the Dutch have been highly critical of major developments in European integration. The Netherlands would like to cut back on the EU budget, it has single-handedly vetoed the accession of Bulgaria and Rumania to the EU¹s free movement of people zone ('Schengen¹), it vetoed the Constitutional Treaty and it has been 'blunt' about supporting problem countries such as Greece. Moreover, The Netherlands has been reluctant at first to enhance powers of the European Commission. All of this has been feeding the impression that the Dutch are changing their minds regarding their traditional position toward the open market and supranationalism.

However, all of this does not need to be seen as anti-European. Evidently there are major challenges facing the EU at present. As a result, there are major political battles going on in the EU. This does not mean that countries such as The Netherlands are turning their backs on European integration. In fact, The Netherlands have continued to be in favour of European integration from a pragmatic perspective. Indeed, it not only supported last year's deeper integration but also proposed independent oversight over national policies by the European Commission. This step was not only a critical element of Greece¹s abilities to manage cutbacks; it also initiated the debates about the haircut on private debts. The criticism on Bulgaria and Rumania was to ensure that failures of premature accessions would not be repeated. The elections of September also proved that voters were in favour of European integration.

Many Dutch positions can actually be regarded as constructive. European politics requires frank discussions. Fights over EU decisions should not be seen as anti-EU. Fights and debates are what politics is all about."

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