By David Ljunggren and Fergal Smith
OTTAWA/TORONTO (Reuters) - Canadian Prime Minister Justin Trudeau on Tuesday said he had "full confidence" in Finance Minister Bill Morneau amid reports of a clash over policy between the two men, who also both face an ethics probe.
The Globe and Mail newspaper cited unnamed sources as saying Trudeau was uncertain whether Morneau was the right person to handle the recovery from the coronavirus outbreak, prompting analysts to fret about Ottawa's becoming distracted.
"Of course the Prime Minister has full confidence in Minister Morneau and any statement to the contrary is false," said a statement from Trudeau's office, praising Morneau's "important work."
The Globe said Morneau was unhappy about how much money Trudeau wanted to spend to deal with the outbreak.
Canada has provided more than C$212 billion ($159.7 billion) in direct COVID-19 support and nearly 14% of gross domestic product in total support. Canada's budget deficit this fiscal year is expected to hit C$343.2 billion, the largest shortfall since World War Two.
Morneau, 57, has been finance minister since the ruling Liberals took power in late 2015.
"To have turnover in such a key role in the middle of an economic crisis ... could rattle investor confidence in Canada and in turn weigh on the Canadian dollar," said Erik Nelson, a currency strategist at Wells Fargo (NYSE:WFC) in New York.
Morneau is under pressure over his failure to promptly repay travel expenses covered for him by a charity at the heart of an ethics investigation. Although Morneau apologized, opposition legislators say he must resign.
Trudeau is also being probed over a possible ethics violation after the charity - which has ties to his family - was chosen to manage a major student grant program. He apologized but denied the charity received any preferential treatment over the deal, which has been scrapped.
"The bus has been rolling toward Mr. Morneau for weeks. Market participants understand that he has become a major political liability," said Karl Schamotta, chief market strategist at Cambridge Global Payments.
Even so, Schamotta said, "Rocking the canoe might increase downside risk for the loonie (the Canadian dollar) and for markets more generally. And a distracted government is the last thing the economy needs."
Potential replacements for Morneau would include Deputy Prime Minister Chrystia Freeland, Foreign Minister Francois-Philippe Champagne and Treasury Board Minister Jean-Yves Duclos, the Globe said.
Another possible choice is Mark Carney, a former head of both the Bank of Canada and Bank of England, the paper said. He does not have a seat in Parliament and tradition dictates he would need to be a legislator before being named to the Cabinet.