European leaders have not done enough to deal with the region's debt crisis and should probably use the International Monetary Fund to more closely monitor countries with the biggest problems, Canadian Finance Minister Jim Flaherty said on Sunday.

Flaherty's comments came after ratings agency Fitch warned late on Friday that a comprehensive solution to the euro zone debt crisis is beyond the region's reach and some of its biggest economies could be hit with credit downgrades in the near future.

The European situation is quite serious and adequate steps have not been taken, he told reporters.

He said countries with the most serious deficit and debt issues need a monitor to make sure they implement their budget cutting plans, a role probably best suited for the IMF.

Euro zone countries should also recapitalize weak banks, Flaherty said, once again urging the region to use its own resources.

The euro zone is expected to tackle its debt crisis this week by offering more cash to the IMF and long-term liquidity to banks, while moving towards tighter fiscal rules.

Flaherty was in Victoria, British Columbia to meet with his provincial counterparts, who are expected to push for hefty increases in health-care transfers from the federal government when an existing funding agreement expires.

Federal officials have not ruled out the idea of linking growth in federal health spending to that of nominal GDP. Flaherty noted there are advantages for the federal government in tying payments to nominal GDP growth.

It is the best reflection of government revenues, Flaherty said. You know, it's inflation plus GDP. That's important to the provinces. It's important to the Government of Canada as well because it's the best predictor of what our revenues will be.

In response to a recent report that Canadian debt levels had reached record highs, Flaherty once again cautioned Canadians about taking on too much debt, particularly residential mortgage debt because interest rates have nowhere to go but up.

He said for now the Canadian government had done enough to cool the property market, pointing a series of mortgage rule changes designed partly to curb speculation, but warned policymakers will keep a close eye.

We've tightened the markets a few times during my time as finance minister. We're always monitoring. We're always watching, Flaherty said. I get concerned sometimes, particularly about the condominium market in Vancouver and Toronto but there's a lot of investment there.