Want to Get out of Debt? Copy Canada: Jim O'Neill
Associate Editor, CNBC
As the rest of the world speculates which bank/country/continent will require another bailout, Canada serves as a “shining” example on how to escape the debt spiral, Jim O’Neill, chief economist at Goldman Sachs, told CNBC on Tuesday.
“It’s easy to say every developed country has problems - but Canada doesn't,” O’Neill said.
The country - home to 32 million people - had its “own severe debt problems, and yet demonstrated that you can undertake supply-side structural reforms” successfully.
On Tuesday, the Bank of Canada became the first country in the G7 to hike interest rates since the global financial crisis ensued, raising their base rate 25 basis points to 0.50 percent. The central bank's move was widely expected after the economy expanded at a 6.1 percent pace in the first quarter.
Canada “is a shining example to the rest of the world,” on how to bounce back from the recession, O'Neill said.
It avoided the sharp downturn other major advanced nations endured by limiting leverage, protecting consumers, and avoiding excessive deregulation of their financial industry.
Euro “Due For A Bounce”
“All this talk of euro is a bit silly,” O’Neill said.
The currency tumbled to a new four-year low against the dollar on Tuesday on fears that the sovereign debt crisis is spreading to the European banking system but recouped some of the lost ground Wednesday morning.
Watch a video of the interview on CNBC
In past two weeks, "the euro's behaviour seems to be a pure test of whether the European Monetary Union will survive," O'Neill said.
But politicians aren’t going to let the single currency fail, he added, concluding that the “euro is due for a bounce.” The UK’s financial situation isn’t as desperate as many people think, O'Neill also said.
The latest economic data supports this: on Tuesday, the UK manufacturing purchasing managers’ index (PMI) grew at its fastest pace in 16 years, and the figure has been above the 50 mark, which signals expansion, since July 2009.
Conversely, the survey also indicated that manufacturing throughout the euro zone nations had declined.
“At the margins, people are slowly starting to think UK is not such a basket case, and perhaps Anglo Saxon countries can grow and others can't,” O'Neill said.
There are “deep-seated fragilities” in Europe, primarily attributed to debt, but having a lot of debt is “not a reliable predictor, it's just a fact,” he explained.
Spain, in particular, should undergo a full-blown stress test to articulate its financial position to the rest of Europe, according to O'Neill.
“A lot of countries - not just the “Club Med” crew - have to realise you can't take markets as being daft.”