Paths for sustained fiscal consolidation should be established, consistent with the agreement reached at last year’s G-20 Summit in Toronto. But more is required. In the Bank of Canada’s opinion, what is needed now is a comprehensive capital plan for European banks, and crucially, a sizeable funding backstop for European sovereigns.
The reality is that the best commitments and even the most binding legislation will not restore investor confidence overnight. As Canada learned in the mid-1990s, countries need to build a sustained track record of tangible results in order to rebuild trust. Similarly, structural policies to enhance growth have a long pay back.