G7 to confer on debt crisis, Flaherty says

Finance minister Jim Flaherty said Monday finance ministers and central bank governors of the Group of Seven largest economies will hold a conference call tomorrow to discuss the European debt crisis.

"I've been having discussions and I will have more discussions tomorrow morning and subsequently with my G7 colleagues," Flaherty said.

"Those discussions also take place with some of the non-European members of the G20 ... who are concerned around the world outside of the euro zone with the potential consequences of a crisis in the euro zone, particularly a banking crisis."

Flaherty said he is very concerned about the deteriorating situation in Europe and that the Canadian government has budget room to introduce measures to stimulate the economy, if necessary.

Hesaid Canada would be hurt by a financial crisis spreading out of Europe or a downturn in the U.S. economy.

'People are freaking out.' Mark Vitner, senior economist, Wells Fargo

Concern about Europe and fears of a global economic downturn generally have roiled stock markets recently and sent investors rushing toward the safest possible investments: U.S. and German government bonds.

As a result, the interest rate on the 10-year U.S. Treasury note has hit a record-low 1.46 per cent. The rate on the German 10-year bond is even lower: 1.17 percent.

"Treasurys are at 1.46 because people are freaking out," says Mark Vitner, senior economist at Wells Fargo Economics.

One worry is that in mid-June, Greek voters will reject the terms of a $170 billion US bailoutwhich called for painful budget cutsand abandon the euro.

Portugal bails out banks

The move could ignite economic and financial chaos as banks and investors freeze lending out of concern about how exposed borrowers are to Greek debt.

In developments Monday in the crisis:

• Portugals finance minister, Vitor Gaspar, said three of the countrys banksBCP, BPI and Caixa Geral de Depositoswould get capital injections totaling more than 6.65 billion in order for them to meet tough new regulations imposed by the European Banking Authority.
• Spanish borrowing rates continued to come under pressure, with the interest rate on the benchmark 10-year bond rate at 6.39 per cent, about 0.08 percentage points lower than on Friday but still close to the levels that pushed Greece, Ireland and Portugal to ask for bailouts over the past two years.Lenders want to know what Spain intends to do about its troubled banking sector.
• In Paris, France's new foreign minister says he is confident his government will bridge its differences with Berlin over how to resolve thecrisis.President Francois Hollande has challenged the German government's austerity-centered approach and called for a much greater focus on economic growth.French Foreign Minister Laurent Fabius said after meeting his German counterpart in Berlin Monday: "It is very important that we succeed in bringing together the points of view; I think that will be the case."