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Canada made deficit-busting look easy. Europe took notice and two aging Liberals, Jean Chrétien and Paul Martin, were resurrected as debt gurus and sent forth to advise clapped-out governments on how to spend a lot less and still achieve prosperity, social harmony and respect at G8 clam bakes.

Mr. Martin, who was finance minister from 1993 to 2002 in the Chrétien government, went to London last year, where he was hailed in the media as the "godfather of the cuts." Mr. Chrétien reportedly gave a "barnstorming" performance when he spoke at The Times CEO Summit last July. "I cut the budget for my wife the first morning," he said to the requisite guffaws.

Debt-choked European Union countries, none more than Britain, took notice of the Canadian example. That's the good news - there is no doubt debt and budget deficits have to get crunched in the EU to forestall a runaway debt crisis, one that could nuke the euro zone.

The bad news is that it's not working, at least not well. Greece is on the verge of default and its exit from the euro zone is no longer inconceivable. Ditto Portugal and Ireland. The debt contagion is hitting Spain and Italy. Britain is borrowing more money than ever. In April, net public sector borrowing (excluding support for the banks) reached £10-billion ($15.9-billion), up from £7.3-billion in the same month in 2010. Overall national debt reached 60.1 per cent of gross domestic product, an increase of seven percentage points in a year.

Might be time for Messrs. Chrétien and Martin to rally the British troops again.

Under the dynamic duo, Canada's fiscal turnaround was impressive. When the Liberals swept to power in 1993, the country was likened to a frozen Mexico. It was getting hit with ratings downgrades. Debt and budget deficits were rising relentlessly. Punishing interest expenses were jeopardizing the social spending that Canadians cherished. As Gluskin Sheff chief economist David Rosenberg noted in a new report, almost 40 per cent of Canada's revenue base was absorbed by interest costs at one point in the 1990s.

The Liberals hauled out the meat cleaver. Civil servants were propelled out the door, R&D spending all but vanished (big mistake, that one), hospital spending sank, the military was handed pop guns.

It worked. Canada's budget deficit, as a percentage of GDP, went from 5.6 per cent in 1993 to a surplus five years later. Since then, the debt-to-GDP ratio has sunk by about half, to 34 per cent. Lower debt costs meant marginal tax rates could fall, attracting investment. Today Canada is one of the strongest economies in the western world. Thank you Mr. Martin.

In the EU, it's a different story. Budget deficits are coming down, but only slowly. France's 2011 deficit is forecast at 6 per cent (worse the Canada's at its 1990s peak), a mere one-percentage-point fall from last year. Ireland's deficit this year will be 10 per cent, Britain's 7.6 per cent.

Overall debt is rising almost everywhere. In Deutsche Bank's entirely credible "negative" scenario, which assumes slightly lower GDP growth and primary budget balances, and slightly higher interest rates than the benign baseline scenario, the debt of the euro zone countries rises relentlessly between now and 2015. Germany's would go from 81 per cent of GDP to 88 per cent; Italy from 119 to 126; Greece from 154 to 187. Barring a GDP growth miracle, some of the national debt loads will be too big to repay.

Why isn't the Canadian model working in Europe?

The first big reason is that Canada's economic bounce-back in the mid- to late-1990s was strong, thanks to a weak Canadian dollar, the start of the China-driven commodities boom, waves of new immigrants and the penchant for higher leverage. As a bonus, interest rates were falling at the time. On the whole, the EU is barely growing. It's easy to improve your debt-to-GDP ratio when the denominator is getting plumper by the day. Rising interest rates are only making the job tougher.

Politics is the second big reason. In the 1990s the Liberals had a strong government and a clear message. Mr. Martin convinced Canadians that their sacrifices would eventually produce pleasing results, such as freeing up spending for education that would otherwise have gone to debt charges.

Not so in the EU. Budget cutbacks are translating into falling or lame governments. Spain's ruling socialists were slaughtered the other day in municipal and regional elections. In Germany, Angela Merkel's support is shrinking. In France, Nicolas Sarkozy's popularity is plummeting. Italy's Silvio Berlusconi seems to be spending more time defending himself in court on bribery and sex charges than fixing Italy's finances. Mass demonstrations, some violent, have paralyzed Athens.

In short, there is little political will in the rich countries to keep bailing out the poor countries. There is little popular will anywhere to pull together, as the Canadians did, to make sacrifices to repair their countries' finances. Voters are punishing governments for extreme cutbacks. Canada made it look easy. In the EU, it's not. The European debt crisis is far from over.

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