If Canadian policy-makers take any lesson from the seemingly endless eurozone crisis, it’s that trying to muddle through can be crippling and corrosive when decisive action is needed.

Europe’s fiscal problems continue to hang over global financial markets. The poster child for this, of course, is Greece; that country has been unable to elect a government, let alone tackle its financial problems head-on. As a result, Greece has been allowed to grow slowly into an increasingly serious threat to economic recovery and financial market stability.

In contrast, Iceland is well on its way to good health after nationalizing parts of its troubled banks, letting the rest fail and undertaking painful fiscal consolidation. The pain was severe but relatively brief. Had policy-makers taken a similarly determined approach with Greece from the outset, that country probably wouldn’t be the looming threat it is today.

And yet, despite the clear advantage of dealing with problems decisively, there’s a powerful temptation to try to muddle through and hope things work out in the end. Policy-makers seem programmed to embrace more of what’s not really working, as long as it hasn’t yet produced a complete catastrophe. Too often, the result is that problems linger, even deepen.

In Canada, this means that fundamental policy issues, such as a lack of retirement savings, are met with programs that seem likely to do little to alleviate the underlying crisis. So, we get pooled registered pension plans instead of a radical remake of the public pension system. Canada’s securities regulators are also often unwilling to make the hard choices that would surely disrupt the status quo. For instance, they continue to push disclosure as the solution to retail investors being wronged in the face of evidence that it can never be an adequate answer. Regulators also neglect persistent systemic issues, such as the erosion of shareholder democracy and the breakdown of the proxy-voting system. And they propose to perpetuate pervasive conflicts between the regulatory and business functions of exchanges.

The recent experience of Europe’s attempt to muddle through its fiscal crisis should, at least, teach Canadian policy-makers that delay and deferral are not winning strategies; often, they just serve to deepen the difficulty.

© 2012 Investment Executive. All rights reserved.