OTTAWA — Canadians are more than just interested bystanders in the Greek drama unfolding in Europe.
Economists say while Canada’s direct exposure to Greece and other peripheral European countries facing grave debt issues is minimal, the indirect impact could be significant.
The Bank of Canada has recently calculated direct claims of the Canadian banking to Greece, Spain, Ireland and Portugal amount to only 0.3 per cent of total assets.
And Merrill Lynch Canada economists put the total potential hit to Canadian banks of estimated European losses at only 0.14 per cent of revenues.
Those are significant, but small. But it’s the indirect impact stemming from an increasingly interconnected world that is the most concern, say analysts, including the central bank.
Canada would be impacted through a general global slowdown and loss of confidence, losses in equity markets that trim household wealth, reduced trade to Europe, tighter credit that raises borrowing costs, and lower global commodity prices.
Then there’s the concern that the situation could unravel as it did in 2008 when the collapse of Lehman Brothers panicked financial markets and eventually triggered a global recession in advanced economies.
Bank of Montreal economist Douglas Porter said the unknown factor is not to be dismissed easily, because the world has never gone through a default of an industrial country tied to a major currency before.