B.C.'s Central Interior will feel the effects if a major meltdown of the European bank system comes to fruition, a Bank of Canada economist warned Wednesday.
Following a presentation to the Prince George Chamber of Commerce, Farid Novin, the Bank's senior economics representative in B.C., provided a scenario in which the fallout would reach across the Atlantic and spark a new banking crisis in the United States.
It would hinge on Spain or Italy effectively defaulting on their debts, which Novin said would put the German and French banks in a lot of trouble.
And, in turn, because they have close ties to the U.S. banks, that trouble would spread to North America where there would be a credit meltdown and further hamper this region's already struggling exports into the U.S.
B.C.'s fallback export market, China, would also be hit.
"China should also be concerned about the situation, because they are exporting a lot into Europe," Novin said.
However, Novin said that's no reason for businesses to curtail investment, stressing a European meltdown is a worst-case scenario.
Indeed, urging businesses to take on more risk was a key message when he spoke to chamber members.
"It's like riding a bicycle," Novin said. "If you stop, you will fall because the competition is going to catch you."
On Wednesday, German and French officials lowered expectations for a deal to save the euro during this week's European summit, deflating investors' optimism about a broad resolution of Europe's debt crisis.
That proposal had sent markets higher this week, especially because investors believe such an agreement would push the European Central Bank to take bolder action to reduce borrowing costs for Italy, Spain and other heavily indebted countries.
The summit, which begins Thursday night, has been described as do-or-die for the eurozone countries, whose economies are being dragged down by crippling debts among some of the countries.
- with files from Canadian Press
