Canada to tell G20 austerity and growth both possible

MONTREAL, June 11 Mon Jun 11, 2012 3:09pm EDT

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MONTREAL, June 11 (Reuters) - Canadian Prime Minister Stephen Harper will preach the benefits of austerity to world leaders when they gather in Mexico next week, arguing that tight budgets and healthy economic growth are both possible.

In a speech on Monday, Harper came down firmly on the side of Germany, which has emphasized the need for fiscal discipline as opposed to economic stimulus measures.

But as he seeks to gain influence ahead of the Ju ne 18-19 summit of the Group of 20 advanced and emerging nations, he framed the austerity-versus-growth debate as a "false choice".

"This will be Canada's message at the G20 summit: economic growth and fiscal discipline are not mutually exclusive; they go hand in hand," Harper said in the prepared text of his speech to a business audience in Montreal.

There is a growing push in the euro zone, led by newly elected French President Francois Hollande, to do more to stimulate growth and not just focus on reducing deficits. Harper met with Hollande in Paris last week.

Germany, the European Union's paymaster, has taken a hard line in favor of tough fiscal targets over the past several years, but it has recently softened its tone and agreed to allow Spain more time to cut its deficit as Madrid battles a deep banking crisis.

In the United States, President Barack Obama talks about the need to stimulate the faltering economy but has few options due to opposition from the Republic majority in the House of Representatives.

Harper said his Conservative government's approach should be a model for the rest of the world, portraying it as a balance between fiscal discipline and growth-boosting measures such as free trade agreements and changes to employment insurance, pensions and immigration policy.

"The Canadian approach is what the world needs," he said.

Canada has a small fiscal deficit of about 1.5 percent of gross domestic product, and plans to balance its budget by the 2015-16 fiscal year.

Harper has bluntly refused to contribute additional money to the International Monetary Fund to cope with Europe's debt crisis, saying European countries are rich enough to handle the problem.

On Monday, he applauded the euro zone's agreement to lend Spain up to 100 billion euros ($125 billion) for its troubled banks.

"I am encouraged to hear of the agreement concluded among members of the euro zone to ensure the stability of the Spanish banking system," he said. "This is the type of measure that Canada favors."

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