With fiscal and monetary policy options dwindling in Europe and the United States, Canada is fortunate to still have some room to maneuver, says BMO Financial Group.

Ina research note, BMO’s chief economist, Sherry Cooper, says that she applauds federal Finance minister, Jim Flaherty’s decision to postpone balancing the budget amid economic uncertainty. “With the rise in the unemployment rate to 7.3% and first half growth of a mere 1.6%, along with increasing global financial uncertainty, there is no need for Canada to mindlessly follow an austerity plan that was developed when the economy was expected to grow at a relatively strong pace,” she says.

Canada may be better off than much of the developed world but, as an open economy, it is impacted by economic, political and financial turmoil in the rest of the world, BMO notes. “It is prudent for us to maintain an open-minded and flexible stance on countercyclical monetary and fiscal policy,” Cooper says. “We have struck the right balance, in my view, on both.”

The crisis in Europe is “far from over”, BMO stresses. “As technocrats take over the helms in both Greece and Italy, there is greater hope for unpopular government and labour reforms. But other measures are urgently needed, including the recapitalization of European banks, the broader role of the European Central Bank and the dramatic enlargement of the resources available to the bailout fund.”

Last week’s ECB rate cut was also welcome, it says, “Hopefully, this will be a first step in additional monetary easing as Europe is uncomfortably close to recession. Austerity programs in most of Europe have weakened economic activity and raised the jobless rate, reducing tax revenues and exacerbating the deficit and debt problems.”

“We are lucky to be Canadian,” it concludes. “And all the more so because we are in a position to ‘keep our powder dry’ in the event that further countercyclical stimulus is needed. Unlike most other developed economies, we have some ammo left and the good sense to know when, and if, to use it.”