Bank of Canada Governor Mark Carney’s speech yesterday expressed a certain amount of concern at developments in the United States and in Europe, and no small amount of frustration at the apparent inability of their policy makers to deal with them.

From the point of view of Canadian policy, the relevant question is how problems in Europe and the U.S. affect Canada. The channel is not, as one might expect, their effects on Canadian net exports. A European recession would have an imperceptible effect on the demand for Canadian-produced goods and services: exports to Europe account for only 1 per cent of Canadian output. A slowdown in the U.S. would be more serious: exports there account for 30 per cent of GDP. On the other hand, that also means that the negative effect on Canadian aggregate demand would be only 30 per cent as strong as the U.S. slowdown that caused it.

In any case, a slowdown in net exports is not inconsistent with a continued Canadian recovery. Indeed, past experience suggests that net exports are generally counter-cyclical. Net exports are typically a drag on growth during expansions.

The more pressing concern is that the European debt crisis might produce the sort of financial crisis that we saw in the fall of 2008. It is clear from both the speeches given by Bank officials and technical reports produced by Bank staffers that the Bank of Canada has spent much of the past few years thinking and worrying about financial contagion. So far, it appears to be confident in its ability to handle another crisis: Canadian chartered banks have little direct exposure to the European debt crisis, so there is again little chance that their solvency will be put in question. As in 2008-09, the challenge will be to provide short-term liquidity to financial markets – and the Bank has already demonstrated its ability and willingness to meet that challenge.

Of course, just because the Bank sees these risks and is reasonably confident in its ability to deal with them doesn’t mean that it really wouldn’t prefer to not deal with them – hence the tone of irritation and impatience with European and U.S. policy makers.

The fact that the Bank of Canada can look upon events in Europe and the U.S. with such relative equanimity may be a sign of a historic transition. The current expansion – like the one that preceded it – is driven by high commodity prices and the incomes those prices generate for Canadians. In the latter part of his speech, Carney notes that

“even though commodity prices have eased in recent weeks, they can be expected to remain at elevated levels, supported by large, sustained demand increases from the emerging world, particularly Asia.”

In the early years of our history, Canadian prosperity was primarily determined by European demand for our natural resources. In the 20th century, the U.S. became our key market.

Now it may be Asia’s turn.