The Australian economy is going well. For now.
The noises coming out of Europe are ominous. Australians should sit up and take notice.
“If there isn’t a solution by Sunday, everything is going to collapse,” said French President Nicolas Sarkozy before dashing to Frankfurt for emergency talks with German Chancellor Angela Merkel.
“If the Euro fails then Europe fails,” said Merkel. Though she added hopefully: “We will not let that happen.”
The German economy is sliding towards recession. British ministers are openly discussing the likelihood of a double dip recession there.
In an article I read yesterday on the European situation the words “careering towards the economics of the Great Depression” leaped off the page. And in Canberra on Thursday, Treasury boss Martin Parkinson warned bluntly that Australia would be hit hard if Europe’s leaders failed to resolve the crisis.
The Australian Government is certainly worried. Treasurer Wayne Swan made that pretty clear when he went to Paris for a G20 finance ministers meeting a week ago.
There, and at other international meetings in Washington a few weeks earlier, the Europeans were given the rounds of the kitchen for dithering over the last 18 months instead of acting decisively.
They were accused of putting the entire global economy - including Australia’s economy - at risk.
Sunday in Brussels - Monday morning Australian time - is crucial. That’s when European leaders are supposed to come up with a comprehensive plan to deal with their economic woes.
Europe - to quote Sarkozy again - “has a rendezvous with its history”. The summit has three jobs to do.
It has to come up with a solution to the dire situation in Greece, where debt default is imminent, more tough austerity measures are in train, and street violence and strikes suggest a society in a state of near-insurrection.
Task number 2 is to massively beef up the European Financial Stability Facility so that, if Spain and Italy get into the same kind of trouble as Greece, there will be a fund big enough to deal with it.
And finally, the leaders are being called on to recapitalise Europe’s banking system, having failed to clean things up after the Global Financial Crisis.
Parkinson told the Senate economics committee that the mess in Europe was already affecting the Australian economy through share market volatility and the impact on consumer and business confidence.
He added: “The bigger risk to the Australian economy, though, would be if Europe failed to deliver a comprehensive response to the sovereign debt crisis and found itself in the situation where basically it was dragging the rest of the world into a second global recession.”
In that situation, China - which sends about 20 per cent of its exports to Europe and about the same to the United States - would be seriously affected, magnifying the impact on Australia.
That would mean damage to growth, jobs and the Budget bottom line. So, even for Australia, the Brussels summit is big deal, and economic experts in Canberra say there is no guarantee it will deliver.
The French and German leaders started their Frankfurt talks in serious disagreement on how radical the package needs to be. Sarkozy wants to go further than Merkel does. Germans are said be be suffering from “bailout fatigue”.
We’d better keep our fingers crossed.
Expectations are so high that, if the European leaders are perceived to fall short again, there’s a major risk financial markets will spiral down. It could all get pretty grim, especially given the deadlock between President Obama and a Republican Congress over measures to revive the US economy .
Some observers are puzzled that the protest movement that began with Occupy Wall Street has not gained greater traction in Australia. It has spread across the US and Europe. In Britain, Occupy London Stock Exchange has caused such disruption that St Paul’s Cathedral may have to close its doors until protesters fold their tents and go home.
Occupy Melbourne demonstrators clashed with police yesterday, but the idea has not caught on in this country to the same extent as elsewhere.
Swan believes the reason is the way the Australian government responded to the GFC.
He says: “We don’t face the unacceptably high levels of unemployment that we’re seeing in the US and Europe with all the challenges that flow from that.
“That’s why we haven’t seen the same sort of anger in Australian streets this week that we have seen overseas.”
The Australian economy has grown by 6 per cent since the GFC, whereas the US and all major industrial economies in Europe are all still smaller than they were when that crisis hit.
And, as Parkinson pointed out to the Senate committee, Australia’s seven per cent debt position compares with a figure in the 90 per cent band in the rest of the developed world.
But none of this will stop the opposition blaming the government if the Brussels summit fails, the global economy goes for a Burton and Australia gets hurt.
You can bet Tony Abbott and his team won’t even accept a serious international economic downturn as an excuse for failure to get the Budget back into surplus by 2013.
Laurie Oakes is political editor for the Nine Network. His column appears every Saturday in News Limited papers.
Read all about it
Up to the minute Twitter chatter
The latest and greatest
Good morning Punchers. After four years of excellent fun and great conversation, this is the final post…
I have had some close calls, one that involved what looked to me like an AK47 pointed my way, followed…
In a world in which there are still people who subscribe to the vile notion that certain victims of sexual…