Harper to frame budget at Davos meeting

Prime Minister Stephen Harper's discussions with global economists, world leaders and thinkers at Davos, Switzerland this week will be partly intended for domestic ears.

The PM will address the need for Europe to take control of its financial crisis and for Canada to diversify its international trade. But sources say he will also use the mountain retreat to set the tone for this spring's belt-tightening budget.

Harper leaves Tuesday night to join other leaders, central bankers, CEOs and some of the world's top thinkers in their annual retreat to ponder the global economy. The theme this year is the "great transformation," with an emphasis on questioning conventional capitalism and searching for new, socially responsible ways to enhance prosperity.

Harper is giving a speech that will likely urge Europe to act quickly to resolve its sovereign debt crisis and discuss how Canada has weathered the recent spasms of economic turmoil.

He'll engage in a question-and-answer series with Klaus Schwab, the German economist who founded the World Economic Forum discussions in Davos. And he'll hold a couple of roundtable discussions with international and Canadian businesses, as a "temperature check on the global economy," said his spokesman Andrew MacDougall.

Throughout the formal and informal gatherings, Harper will promote Canada as a source of trade, natural resources and economic stability, MacDougall said.

However, part of his message will be meant mainly for a domestic audience, stressing the need to keep Canada's finances on track amid global economic fragility.

Deficit elimination

Finance Minister Jim Flaherty, who will also be in Davos, has set the federal government on a path to eliminate the deficit in four or five years by cutting billions in government spending.

But recently he suggested this spring's budget would not be as harsh as some fear, saying it "is not going to be a slash-and-burn budget." He said Canada is in better fiscal shape than the United Kingdom, for example, where more drastic measures are in store.

Despite Harper's talk of job creation and growth, Canada's federal public service is already shrinking and is bracing for severe job cuts in the spring.

In the wake of the U.S. rejection of the Keystone XL oil pipeline through the United States, Harper will also emphasize that Canada aims to increase energy exports to emerging markets and broaden trade ties with other countries, MacDougall said.

From a global perspective, Canada has won some bragging rights for scraping through the last few rounds of global crisis relatively unscathed, said Nariman Behravesh, chief economist of U.S.-based consulting firm IHS.

Canada's debt is so well under control "if Canada needed to, it could stimulate fiscal policy. It's got a lot of room to manoeuvre," Behravesh said in a telephone interview from Davos. However, he added, Harper should keep in mind that house prices and household debt are too high and make Canada's economy vulnerable.

"He's got to be a little careful not to get too preachy," he warned. "Otherwise it could come back to haunt him."

'He's got to be a little careful not to get too preachy. Otherwise it could come back to haunt him." ' — Person quoted

Harper's preoccupation is that Europe's debt crisis will spiral out of control, contaminate the global economy and hurt Canada, MacDougall said.

In its latest global forecast on Tuesday the International Monetary Fund warned that Europe is slipping into a mild recession, dragging the rest of the world down. The IMF reduced its expectations for global growth, projecting just a 3.25 per cent expansion this year, compared with its fall forecast of four per cent.

IMF managing director Christine Lagarde said earlier this week the world risks a "1930s moment" if Europe's troubles persist. She urged Europeans to put more money toward rescue funds, something Canadian officials would also like to see.

Conditions for progress

The Davos meeting could actually create the conditions for progress in Europe, especially in dealing with Greece's debt and Italy's structural reforms, said Behravesh.

"There is a lot of pressure to stop talking and get on with it," he said. "The hope is that they will make progress."

The Canadian contingent in Davos also includes Foreign Affairs Minister John Baird, International Trade Minister Ed Fast, Bank of Canada Governor Mark Carney and Quebec Premier Jean Charest, as well as numerous business leaders.

In all, about 2,600 participants are trekking to the ski resort, which is normally a playground for the rich and famous.

A group of global leaders, including Carney, have already started the meetings with a "call to action" that asks all countries to do what they can to fuel growth, end protectionism and reduce high unemployment, especially among youth. The plan calls on governments to invest in infrastructure, in more environmentally friendly economies and in addressing inequality.

Carney and his colleagues want an "intensified" action plan to be agreed upon at the next G20 summit in Mexico in June.

"Manage fiscal consolidation to promote rather than reduce prospects for growth and employment," they say in a note on the World Economic Forum's website. "It should be applied in a socially responsible manner."

Outside the formal meeting halls of the World Economic Forum, "Occupy Davos" activists are setting up igloos and yurts to urge action on inequality and poverty.

World Economic Forum executive Robert Greenhil a Canadian who used to lead the Canadian International Development Agency, tweeted this week that he went out to lend a hand to the igloo-builders. "Different approach; same goal," he typed.