The 2009 Canada-UK Colloquium

Although the acute phase of the financial storm, which broke with full force last September, now appears to have passed, there are still many concerns about future economic stability. It is still highly relevant to consider the underlying reasons for last autumn's financial crisis and the economic crisis that preceded it.

Was there just a large financial crisis caused by sub-prime lending, a lack of transparency due to securitization, and a credit crunch after the Lehman’s collapse when counterparty risk could no longer be assessed by commercial and investment banks, or was the real problem broader and deeper? For instance, should central banks have lowered interest rates earlier last summer, even though inflation was still rising due to pressures from commodity prices and the impact of continuing very fast growth in China and other BRIC economies? Could more have been done to recognize and check the increased tolerance of risk among banks, businesses, investors and even governments in recent years?

How far has British and Canadian experience of the crises differed and also the policy responses? What conclusions can be drawn from this and lessons learned? Canada seems to have weathered the financial storm very well, but what are the implications of its proximity to the USA and of the interdependence of the two economies within NAFTA?
The impact of the financial crisis is still having a knock-on effect in the "real" economy, in rising unemployment, continuing bankruptcies, stagnating production, and unstable real estate prices. Some developing and intermediate economies have been especially badly affected, while the picture in the BRIC economies is mixed.

In macro-economic terms there is concern about serious fiscal imbalances, and the huge increase in debt in some countries, incurred to finance bank bail-outs or economic stimulus packages, including quantitative easing. Does Canadian experience in dealing with a major deficit in the mid-nineties offer useful guidance in today’s conditions?

It is not clear how long interest rates can remain low against this background and whether stagflation or renewed inflation will become priority issues. Will recovery from the recession follow a U, a V, a W or an L pattern? Higher interest rates could cut short the fragile recovery in some countries.

Economic nationalism remains a threat to the world recovery despite the protestations of many governments to the contrary. Are exchange rate adjustments moving in the right direction to achieve a generalized economic recovery? What are the prospects for reaching a satisfactory conclusion to the current WTO round? Would a Canada-EU Free Trade Agreement assist bilateral and world recovery?

Have national stimulus packages placed enough emphasis on the climate change agenda, such as promoting “green jobs” and shifting energy investment towards renewables or carbon capture and storage? Has the challenge of managing the recession diverted governments and businesses from their efforts to meet ambitious environmental targets, whatever the reassurances to the contrary?

Although some measures are being taken by governments to tighten financial regulation of institutions and products, and to improve corporate governance in the financial sector, more needs to be done. It will be valuable to compare British and Canadian experience, both from the point of view of the regulators and from that of commercial and investment banks. Important issues must be addressed now that some bank profits are recovering in order to ensure the right balance between shareholder, bank employees and directors, and the taxpayer, who carried the burden of individual rescues and systemic stabilization.
In the OECD economies, governments may be under pressure to return to active involvement in sectors of the economy from which they had long withdrawn. Might this stifle growth? Or do liberal market policies need to adjust to a greater role for the state? Specifically, are there useful lessons from the differing forms of regulation as between the UK and Canada?

It is crucial for policy-makers to listen at first-hand to the views of business and trade union leaders on the impact of the crisis, the sustainability of the recovery, and lessons to be learned for the future. Unemployment is a lagging indicator, and the impact of the financial crisis has been very severe in that respect. Further bankruptcies are to be expected as demand recovers and cash flows come under greater pressure, which will exacerbate the social costs. Are governments pursuing correct policies vis-à-vis unemployment and retraining, and also pensions, after economic and financial dislocation?

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