Another Spill Another Outrage

Oil spill on Red Deer River, Alta

Another spill another excuse for environmentalists to block the Keystone XL and Northern Gateways of this World. Alberta suffered its third significant oil spill of 2012 near Elk Point 200 km northeast of Edmonton, as Enbridge’s Athabasca pipeline spilled some 1450 barrels of oil onto farmland. This comes as environmental crews are still cleaning up two larger oil spills in Alberta near Red Deer in Alberta’s deep north.

One can now expect to see the Pembina Institute, Greenpeace et al. descending on Alberta with renewed fervour to oppose the Oil Sands development. Likewise, south of the border, environmental groups will use these spills as further proof that Keystone XL and other pipeline projects must be stopped. Industry insiders and astute observes might come to a different conclusion based on these spills.

It is well know in the industry that the leading cause of pipeline rupture is third party related. That is to say I pipeline is most likely to be ruptured when a construction crew doesn’t do its land surveying due diligence. In the rest of incidences, the leading cause for ruptures or spills are corrosion and excess pressure.

Now both these causes have their own causes and those are the ones environmentalists should be worrying about.

Corrosion occurs most often when the interior coating of a pipeline isn’t adequately maintained and is exposed for long periods of time to acidity. Heavy Crude oil can be highly viscous and must be diluted with various sorts of acids and chemicals to help ease the flow in a pipeline. Such additives may corrode a pipeline over time when coating isn’t sufficiently or regularly applied. In Germany for example most of the pipeline infrastructure dates from the post war recovery, and thanks to consistent coating, the industry there reports some of the lowest incident records.

Excess pressure is a problem due to mismatching of the pressure pumped through a pipeline and its design pressure capacity. With time the structural integrity of a pipeline tends to diminish somewhat, which means that pressure needs to be corrected downward as a pipeline ages. With the ramp up of production in the Bakken oil fields of North-Dakota and Oil Sands in Alberta’s Athabasca Region, expectation is that pipeline operators will be pushed to capacity, increasing pressure flow to its limits and playing catch up on pressure capacity assessment.

In both cases monitoring is key to safety. Nobody argues that industry norms need to be updated regularly if not imposed through regulation. What can be argued is that in both cases there is a common variable. Time. A Canadian study by the Energy Board of Canada said that non third party related spills were time dependent. On average the first spill in a pipeline system occurred after 28 years of operation. After adequate monitoring of pressure and coating adequacy quality control, the most important contributor to pipeline spill prevention is keeping pipeline systems young. In other transportation industries such as airlines, shipping and railroads the norm is to limit the age of fleets as well as do proper maintenance.

So what do Keystone XL and Northern Gateway have to do with all this. These pipelines would both do three things. One, they would reduce average pressure throughout the North American pipeline system by increasing flow capacity for a predetermined amount of oil and gas production. Secondly, modes of oil transportation with even worst safety records wouldn’t be used. Trains and trucks tend to derail or get into highway accidents, causing injuries or fatalities as well as spills that wouldn’t occur in pipelines; today without XL and Northern Gateway trucks and trains are increasingly being used to transport large amounts of oil. The third effect of building Keystone and Northern Gateway would be to decrease the average age of the pipeline system, as they’d be new.

All in all these pipeline mega projects would serve to increase the safety of the North American energy industry and reduce ecologically destructive oil and gas spills. Environmentalists should ask themselves whose side they’re on: the anti-oil lobby side, or the environment’s.

Also published in the Prince Arthur Herald here. 

Environment & Capitalism Marriage 1 – Government Dirigisme 0

An attendee at a cocktail party given by Export Development Canada during the International Economic Forum of the Americas remarked that inventors and entrepreneurs needed government R&D subsidies to help commercialize new processes. An entrepreneur in new Pipe Organ technology manufacturing, he insisted that his technological advances would never have been brought to market without bridge loans and taxe credits for R&D.

Today General Electric and Sargas of Norway have announced a breakthrough in carbon capture technologie. A new model of GE’s gas plants will be built with Sargas’s new process that would capture 90 per cent of their output of carbon dioxide, which can then be injected into oilfields to squeeze out more crude.

This could be doubly environmentally friendly as such a technology could potentially be used to reduce energy consumption in the energy extraction process to complement such technologies as Steam Assisted Gravitational Drainage which consumes much energy in the extraction of bitumen oil in Alberta or heavy crude in California.

Sargas’ technology which promises to capture up to 99% of Carbon emission in certain instances will now be commercialized by Big Business as embodied by one of the worlds largest, most profitable conglomerates: GE

Since GE’s CEOs are typically anti-tax, anti-big government and republican, one might wonder if Obama and the Democrats of this World will be shaken in their belief of Government economic and social ‘dirigisme’ now that the company promises to do what billions of dollars of American taxpayer money subsidized R&D research could not?

The OECD Has it All Wrong About Canada

The OECD came out with its Economic Survey of Canada last week and like so many other institutions and commentators before it, has got it all wrong. The report lauded Canada for its fiscal performance but gave it a failing grade for productivity growth. The report, amongst other things, criticizes Canada for its declining multifactor productivity, a measure of output denominated by an assortment of production inputs. The report asserts that multi factor productivity (MFP) has been declining since 2002 and seriously lagging that of the United States. The report adds that Canada’s factors of production mix is skewed heavily towards engineering structures to the detriment of machinery and equipement.

While MFP has been dropping in Canada since 2002, many would argue that looking at labour productivity is more important. Productivity per hour worked in Canada has grown from $156 to $183 from 1997 to 2011 an increase of 17% over the period, far from the alarming trend the OECD reports. Noteworthy however is the slowing growth of productivity growth during this period from a high of 2.61% in 1999 to the present growth of 0.75% in 2011

The error of the OECD report however is one of not looking into the underlying trends and the break down of productivity change by industry. If one breaks down the numbers to find out which industries contributed to the change in the overall economy a few truths become apparent. The slowing growth is mostly attributable to one sector: mining and oil & gas extraction. This sector registered the steepest loss in productivity since 1997 contributing -8.17% to overall per worker productivity in Canada. Virtually all other sectors contributed positively to productivity growth (with the exception of the public sector and its tangents). And since mining and oil & gas extraction is the fastest growing sector in Canada the loss in productivity weights down heavily on the numbers reported by the OECD.

MFP is weighted down even more heavily by the this sector, as much of new fixed capital formation originates from Alberta’s energy industry. So why isn’t this trend worrying? the answer lies in the basics of economics. Productivity in tangible assets tends to lagg investment by tangible assets. Basic macroeconomic models tend to assume a lagg of one year between investment in fixed assets and new production from those assets. But the oil sands development in Alberta is bucking that trend as the magnitude of those  investments is larger than ever before, and the huge oil sands mines of the Athabasca region are unparalleled in history.

Most of the mines under construction take between 5 and 10 years to reach capacity and since the oil sands developments are still relatively new, few if any of the largest mines are near capacity. Production in the oil sands is estimated to double within the next decade while employment will drop as temporary construction jobs in the sector are slated to be replaced by fewer permanent operating jobs.

These trends will lead to a complete reversal of the national productivity contribution of the sector, from the most negative to what will be the most positive contribution. Canada’s over investment in Engineering structures isn’t a fluke accident on the part of Canadian businesses. It is rather a sign that business leaders in the nation understand where Canada’s growth will come from in the future.

What is strange is that these developments are widely known, as the Canadian Association of Petroleum Producers widely communicates them. That the OECD and the Bank of Canada before it, have not picked up on these trends is testament to the short term vision of macroeconomic study at some of the most important economic institutions. One hopes that policy makers don’t get wound up in the noise from these economist and continue to provide policy changes geared towards letting Canada shift economic activity to where the nation has a comparative advantage.

New Bridge Coming to

The most populous province of Canada Ontario does not share a land border with the United States. From the Angle Inglet flowing into the Lake of Woods all the way to the St-Lawrence River near Cornwall, Ontario is continually separated from the Northeast States by the water system of the Great Lakes. This border’s particularity is surely a vestige from the 1812 war pitting the British Colonies of which Ontario was part of, against the expanding American republic headed by James Madison. Since that time relations have warmed significantly to fraternal levels. Joint participation in two World Wars, the signing of the Auto Pact between  Prime Minister Lester B. Pearson and President Lyndon B. Johnson, the signing of NAFTA between Prime Minister Brian Mulroney and President Ronald Reagan served as a few, among many milestones, on the way to developing one of the most important bilateral trade relations the World has ever known.

Today, this commercial and economic partnership is anchored by a set of infrastructures reducing the historical and natural barriers separating the foes of old. Eight bridges, one tunnel and a plethora of train tracks and hydrodames help connect the millions of Canadians and Americans separated by the Great Lakes water system. This connection is particularly embodied by the Ambassador Bridge. That privately owned crossing is the route by which 25% of cross border trade volumes transits. Much of the automobiles assembled in Michigan source their parts from Ontario and vice-versa. This symbolic and economically vital route is now clogged, bogging down vital trade and hurting both jurisdictions were it hurts the most; their respective manufacturing industries.

It would seem that the relationship has outgrown the infrastructure underpinning it. There have been vocal campaigns (mostly from but not limited to the Canadian side) to build a second bridge. Previous efforts by the Republican Governor of Michigan and various levels of Canadian government have been stymied by  the owner of the Ambassador Bridge Manuel “Matty” Moroun’s lobbying efforts.

The Ambassador Bridge effectively holds a monopoly on commercial truck traffic. Efforts to stop the construction of a competing bridge is the definition of rent seeking behaviour and crony capitalism. Using his leverage and clout within the State Congress of Michigan to try and legislatively block such a construction, including through state constitutional amendments while rational, is the summum of selfish and amoral commercial behaviour.

An announcement by governments from both sides of the St-Mary’s River is expect Friday, where the Canadian government is thought to renew its pledge to pay for the American shares of construction costs. Let’s hope a new bridge is on its way as the beleaguered World economy can use every bit of trade increase in can get.

Krugman Baltic Bashing 2.0

It would seem that after a tweeter row with Estonian President, Krugman hasn’t had enough fun senselessly putting down Baltic States. In his new blog post, Krugman turns against Latvia in his anti-austerity tirades. While he initially criticized pro-austerity commentators for ‘lionizing’ Estonia as a standard bearer for successful austerity policies, he know seems to believe that Latvia was the lionized example for austerity. Leaving aside Krugman’s inability to decide which austerity policy orientated government is easiest to criticize let’s take a closer look at his accusations.

Krugman quotes Eurostat numbers for real GDP levels, showing that Latvia has had the deepest contraction of the Baltic States, Ireland and Iceland, also showing Latvia having the smallest recovery of pre-crisis level GDP. A few notes must be added to his demonstration. Firstly, both Ireland and Iceland received EU/IMF bailouts to stabilize GDP and also e currency’s value in Iceland’s case, none of the Baltic States received such external inflow of capital to buttress government spending.

Furthermore, both Latvia and Lithuania racked in relatively big budget deficits during the crisis in comparison to Estonia. Why attack the Baltics states least keen on austerity for their austerity policies, why stop talking about Estonia, the real standard bearer for fiscal hawkishness. Again leaving aside this Krugmanesque inconsistency let us look at Baltic States in Comparison to other Euro economies many of which signed on to the G20 pledge for stimulus spending during the crisis.

 Here, seasonably and daily adjusted quarterly per capita real GDP numbers from Eurostat (same source as P. Krugman) tell a different story. This chart shows that while the recession was deep in the Baltic States the recovery was strong, leading all Baltic Nations to have caught to their pre crisis levels (per capita of course) and to the EU as a whole. While Germany, arguably the strongest economy in Europe is above its pre crisis level, there should be no denying that the Ba;tic States chose to bite the bullet early but recover quickly. One wonders if so much can be said for the PIIGS. So without a European bailout Latvia and its Baltic colleagues don’t seem to be doing all that bad. As has been argued before Krugman fails to take into consideration decline population into his thinking when using national GDP numbers. A guess can also be ventured that depending on what time series he chooses to use (constant vs market prices) numbers may vary substantially when evaluating economic performance, no nuancing words from him on that subject.

In any case to better understand recovery dynamics between nations attention must be paid to the depth of contraction as well as the magnitude of recovery. The above chart shows the ratio of real per capita GDP recovery to real per capita GDP contraction. With an EU average a smudge over 1, one can see that the strength of the recovery has been stronger in the Baltic States than in most of Europe. Only the Norther nations of Germany, Austria, Finland, Luxembourg and a few others have been stronger.

So how to explain the difference between austerity in the south and in the Baltic region. The most obvious answer is that states that don’t rely heavily on Government spending during the good times stand to loose less from tight fiscal policy in the bad times. Ireland and Spain do of course buck that trend but the conjecture of their recessions were different in nature than in most of Europe. 

Again it must be repeated that much of the superficial weakness in the Baltic States must be attributed to Europe in general and the rest of the sluggish growth in the World. As export dependent nations they should not be expected to outgrow other regions when there is only week growth in consumption outside their borders. There is however much hope for the Baltic tigers future prospects. As export dependent nations who have refused to transition to internal consumption driven economies, they remain leveraged to an eventual uptick in World growth and are less dependent on foreign capital flows to pay for their growth.

Small open economies the World over should learn from the Baltic experiment that is unfolding and look forward to the next chapter that will surely put stubbornly uncompetitive economies to shame. Let’s hope Krugman can remember his own writings when that happens, so that the rest of us can enjoy his efforts at keeping a straight face when attempting to convince us he was right all along.

PPP New Conduits for African Development?

Montreal. One of the conferences at the Montreal World Economic Forum of the Americas centered around African nations’ experiences with Public Private Partnerships. The handful of African ministerial aides indulged in a fair bit of finger wagging and corporate bashing. While the rhetoric was moderate, the systemic deficiencies in the African growth model were made clear.

What was made clear is that the avenues through which African ministries and international development agencies attempt to alleviate poverty have skewed the incentives for long term growth of the continent. The discussion at hand were centered around the 3P model of development and the various benefits and shortfalls the projects have represented in the past. Surprisingly little discussion was expanded around the subject of 3P structuring.

3P projects seem to have gained a certain amount of popularity in Africa of late, as financing infrastructure projects of quality remains a challenge for the revenue challenged nations of Africa. Inviting corporations to come finance and operate governmental pet projects has become the priorité du jour, with the stated objective of reducing poverty. Some may ask how effective this top down setup really is.

On panelist from the African Development Bank raised the question of best practices for handling unsolicited private sector proposals for 3P projects, while another raised the issue of setting up a strong and consistent framework around 3P structuring. The issue with government developing and choosing infrastructure projects is obviously one of pork barrel economics. Especially in a continent such as Africa, the process should be as arm-length away from the political, what better way to do that than to let the private sector originate 3P project ideas. The potential innovations and efficiencies of private sector involvement would be compounded and government exposure to risk, that a project might loose taxpayer money, would be reduced since the profit motive would guide all project initiations.

For businesses to be permitted to propose 3P projects the guidelines and norms regulating ownership and revenue sharing would have to be determined ex-ante and implemented consistently. This would enhance trust, reduce risk both for government and business and especially enhance the likelihood that only the most pressingly necessary projects get built.

That no one in the continent hasn’t yet put the two ideas together and implemented them, speaks to the continents disfunction and lack governmental vision and innovation. Further discussions with the African Development Bank reveals that few international institutions have the mandate or the clout to suggest frameworks for developing mutually beneficial 3P frameworks, 3P’s are unlikely to be the panacea for growth hoped for. The continent will have to continue bitting its time waiting for someone to finally push through the growth policies the African continent desperately needs.

Spanish Bank’s Get Government Brokered Bailout

Madrid / Brussels. While Spanish Prime Minister Mariano Rajoy continues to deny Spain’s need to bailout its banking sector an informal agreement has been reached on the possibility of Spain taping 100 Billion Euros for the purpose of restructuring its banks. The agreement was apparently reached in less than two hours over the weekend at which time Spain was offered $125 Billion with virtually no strings attached. While the details of the agreement remain unannounced, previous rounds of austerity measures and structural reforms were enough to convince Northern Europe of Spanish fiscal credibility and bailout merit.

Whether the European Stability Mechanism will be employed to fund the European loan to Spain or whether the temporary European Financial Stability Facility will be used remains to be negotiated as the ESM is not slated to be in operation before the end of June 2012. Spanish borrowing needs till the end of the year amount to roughly 70 Billion Euros and estimates for a banking bailout in Spain have ranged from 40 to 90 Billion Euros, meaning the European loan could very possibly be large enough to cover all governmental liquidity needs till 2013. If that is the case the nominal yield on Spanish debt will matter little in for the short term and give Spain another 6 months to implement structural reform conducive to growth.

The loan will be provided to the Fund for Orderly Bank Restructuring (FOBR), a Spanish regulatory group created in 2009 to oversee bank mergers and acquisitions, with the objective to ensure that all banking groups in Spain remain solvent. With a war-chest previously estimated at 99 Billion Euros minus the Bankia bailout, the European loan will bring the FOBR’s capital firepower up to ~180 Billion Euros.

The downside of the loan is that it would bring Spanish debt to GDP levels up to ~90%, a historically undesirable number. Another worry for investors is whether the ESM or EFSF will be the loan issuers. ESM issued loans and rescue passages will have senior status and subordinate all previously issued bonds and treasury bills, while the EFSF originated loans have the same status as privately marketed debt securities. This uncertainty wiped out all the gain in Spanish bond prices initially generated by the announcement. It is widely speculated that the loan will not subordinate private debt as Germany and co. would like to see Spain return to capital markets to finance its deficits at reasonable yields.

Another concern is the continued slid in property values that could lead to higher bad loan ratios at the banks. Banking loans past due by 3 months have already reached highs not seen since the mid 90’s, at a staggering 143.5 Billion Euros. With property values continuing to slide and unemployment still at ~24% the risk of a continued slid in Spanish bank assets may eclipse the size of the current bailout proposal.

Negotiations are expected to resume once Mariano Rajoy has finished watching the Euro football championship, which might be soon seeing as the Spaniards could not even beat Italy in round robin play.

Shameful Estonia Bashing

So Krugman likes to put graphs on his blog every now and then to try and dispel the notion that he is a mortal commentator, and to remind us underlings that he is a Nobel Laureate. In this post Krugman shows that Real GDP in Estonia dropped by 20% since the peak. He challenges the assertion that Estonia is a model for austerity and unwittingly pisses off everybody in Estonia.

While it’s nice to say that real GDP has fallen by 20% there are a few sticky points one looks at when trying to parcel together a nuanced and representative view of a nations economic well being. First of all comparing Estonia to any other industrialized nation is very hard. As a small open economy based on trade, the country’s GDP is naturally leveraged to the rest of the World, hence when Estonia’s exports are off it’s fair to say it’s probably Europe’s fault. If the Eurozone decides to avert a World depression Estonia will bounce back strong, not like the squeamish recoveries the Italians, Spaniards and French are expecting.

Second we have to ask ourselves how relevant it is to look at a peak to trough GDP levels. In 2008 Estonia had to be at least 5% above potential GDP if not more, one can imagine that today Estonia is only a few %’s below, what’s the big fuss about then?

Now we also need to remember that with a population dropping by just under 1% a year, that adds about 1% a year of real GDP per Capita, which is a sensibly more important figure when analyzing peoples’ plight. Furthermore, when converted to Purchasing Power Parity  GDP per capita in Estonia doesn’t look the same at all. Here it would seem after 2 years of foreign generated crisis, aggregate consumption is only down by 10%, not too shabby.

In any case when a country of 1.3 Million people is faced with serious foreign headwinds, internal demand cannot be deep enough, even when backed by government, to successfully grow an economy. Austerity is the solution, without a culture of austerity Estonia would look like Cyprus right about now, on its knees and begging. But no, Estonia stands tall with its annualized 40% growth in industrial production in the months following the recession, hands not extended, but rather working hard.

Were the government to have decided to stimulate the economy with massive stimulus (which incidentally past austerity now affords them) the rebalancing of the economy from export secteurs to internal consumption would have crippled its growth profile in the medium term. As noted above Estonia current economic growth is leveraged to external demand, shifting that to internal demand would require spending on training, temporary adjustment spending and the like to great cost. Sure GDP would go up temporarily as half the population goes from manufacturing exports or exporting services to building variously unnecessary infrastructure. Then, when World GDP starts growing (hopefully one day) Estonia would not then be able to benefit from external demand. The opportunity cost of government stimulated internal demand can be huge in the long run in terms of lost exports.

To recap: Krugman is advocating de-leveraging the economy from exports by financially leveraging it to sovereign debt. Let’s ask the Greeks how that worked out for them shall we? Estonia has had it though over the last century or so, what with communism and all, why doesn’t Krugman go pick on somebody who deserves it for once.

Positive Tweak on Keynesian Bad Idea

Growth, growth and less austerity. This is what all commentators of the keynesian persuasion advocate. With regards to Spain they advocate more spending to buffer the fledgling economy all while bailing out the banking sector. As everyone knows this tour de force isn’t exactly possible with borrowing costs above 6%. In an Op-ed by Kemal Dervis, the ugly side of helicopternomics reared its head yet again. While already asking for the ECB to essentially finance a bank bailout in Spain, he goes on to ask Spain to start stimulating demand by giving money to people with a high propensity to consume.

That the faults of this perennial keynesian idea continue to go unnoticed is alarming enough, but that Northern European money be asked to directly finance non-investment expenditure speaks to the moral weakness of Keynesians at large. Without advocating for such a solution, let us develop a framework for such keynesian spendthriftiness  where moral hazards aren’t proactively exacerbated.

Assuming (key word implying lack of empiricism) that it were desirable to stimulate demand in Spain, it would be necessary to increase spending, right? but not necessarily government spending. Here a public-private partnership infrastructure scheme might not be counterproductive. As advocated by Germany, 3P projects could be financed by EU institutions through jointly guaranteed bonds (read Eurobonds in any language other than German). If these projects were limited to intra-union trade infrastructure projects there could be a sense that while spending temporarily serves the interest of the local nation, say Spain, the long-term benefits might be more collective. Ports, airports, railway infrastructure and international highways could all serve the purpose of increasing trade within the currency block, or better within the EU so as to further diversify the funding sources.

Ownership of these infrastructures should remain private, that way recipient nations of the spending would be less inclined to repetitively request other nations money, when they wouldn’t get revenues generated by these privately owned, publicly financed projects. Of course the EU would retain economic stakes (non-voting shares) so as to repay its initial investment, all while letting the private sector run the show efficiently.

The Canadian Pensions Plans recent inroads in private equity and purchase of European infrastructures shows that there remains private demand for long term cash flow generating assets. This demand probably necessitates little government intervention to be sparked. If a pan European Valencia-Barcelona-Marseille-Genoa toll highway were proposed it probably wouldn’t even need to be financed by government as Sovereign Wealth Funds and large Pension Plans would all splurge on such an asset. Heck with property values down in Spain it probably makes good business sense to start building infrastructure now anyways. While government sponsored projects may be the only politically viable option more thinking should go into deregulating infrastructure permitting.

In any case since southern Europe has a productivity deficit, there probably isn’t a better solution to Europe’s longterm woes than increasing infrastructure capacity and efficiency.

Germany Chastises Canada, Sort Of…

Germany reiterated calls today for Canada to participate in the beefing of the IMF funding. The IMF is currently seeking to raise its war chest to 430 Billion dollars in preparation of possible new bail-outs in Europe to serve as a firewall against liquidity contagion of sovereign debt financing. Canadian Prime Minister Stephen Harper and his finance minister Jim Flaherty have resisted demands for the country to participate. While Canada has received praised from Germany for its take on austerity it continues to be admonished for showing little ‘solidarity’ in matters of bailing out Europe.

Harper has repeatedly said that taxpayers in Canada would not participate in financing the welfare state of some of the Richest nations of the World. It must be noted however that Germany is showing a little lack of consistency in its criticism. Much of the political difficulties in the current European sovereign debt crisis stems from Berlin’s refusal to risk its own taxpayer moneys on alleviating required austerity in the Eurozone periphery, so how can Angela Merkel, Germany’s Chancellor, turn around and ask of Canadians what it won’t ask of its own people.

When a country goes bankrupt it makes sense to stabilize that country’s finances and currency through an IMF led debt restructuring with the objective in mind to return that country to a sustainable growth path and government spending. But when the World is faced with the likes of Greece whose sense of state welfare entitlement is so strong that it refuses the policy prescriptions attached to IMF lending, why should the World backstop its governmental spending. European style welfare states require generous taxpayer funding and strong longterm growth to be sustainable, countries desirous of receiving lending from the IMF must accept a model that both generates growth and taxes heavily. For countries to achieve those dual requirements they cannot be hampered by distorted fiscal incentives, which lax IMF lending standards embody.

It should be unacceptable that the IMF, funded by every country in the World including its poorest, should serve as a tool to preserve un merited entitlements in the richest nations of the World. The Conservative governments stand is that the IMF should only serve the Worlds poorest governments, this isn’t right, the World Bank is there to help the poorest, the IMF’s role should be to stabilize the World’s financial system by increasing sovereign liquidity to governments hampered by temporary market pressures.  But Harper is right with regards to who those fledging governments are.

Spain is a prime example of a relatively responsible government facing pressures outside its control and in need of a temporary backstop. Greece however is the antithesis of a responsible nation, underserving of outside help since all its problems are internal. Canada should increase its participation in funding the IMF, but this extra funding should come with conditions. Those conditions should be that the IMF serve strictly the needs of governments willing to accept the longterm rebalancing of their public expenditures, as has been the historical norm. Countries that dither and object to bail-out conditions ex-post, should be blacklisted so that the IMF may concentrate its ressources on countries like Spain who can actually benefit from it and Ireland who has shown responsibility and a willingness to proactively deserve it.

Germany has made many correct economic arguments over the course of the current crisis, let’s hope she can continue to make them consistently going foreword.