Greek debt crisis will impact Canadian economy

For the European Union, the Greek debt crisis serves as one of its largest financial and economic policy challenges in years. The impacts of the crisis are not isolated to Europe. North America will feel the shockwaves of Europe’s financial problems and perhaps more troubling, it could foreshadow what this country could face in the future.

Canadian banks, governments and associations only have 0.3 per cent of their assets wrapped up in Greece. As such, the direct impact of Greece’s debt crisis on Canada will be minimal.

However, uncertainty in the global economy can only have detrimental impacts on the Canadian economy. Canada was pulled down during the 2008 financial collapse in the United States, characterized by the initial collapse of Lehman Brothers, one of the largest investment banks in the country at the time.

This is Greece’s Lehman Brothers incident and its importance cannot be overstated. The reaction of the global markets to the recent events was disturbing — the American stocks had their first weekly loss since September in the aftermath of the Greek bailout. The Canadian dollar fell 2.2 per cent as investors shifted to the American dollar as their favoured currency.

The idea that the Greek crisis operates in isolation is naïve. In a globalized capitalist economy, the fall of any one economy is important — this one is especially so given the fact that this is the most prominent industrialized country to default on its debt.

These debt crises will continue until the leading global economies get serious about spending. The United States is not Greece and perhaps it never will be. Yet, America has a major debt issue as well and the Congressional Budget Office estimates that the country’s debt-to-GDP ratio could balloon to 140 per cent — Greece’s is 130 per cent.

That rise will be gradual and there are a host of other issues which make America unique from Greece. Yet Greece’s problems weren’t on the forefront five years ago either. A debt crisis in America like what is happening in Greece would cripple the Canadian economy; indeed, even a double-dip recession in the United States would impact Canada.

In the big picture, it wouldn’t seem that a relatively tiny European economy would impact the global economic system. Yet, it should prompt serious discussion about North American economic policies and remind us that in a globalized world, nothing is ever isolated.