The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

8 August 2011

Interview with Max Pearson

BBC World Service

8 August 2011

SUBJECTS: Global Economy

HOST:

Markets around the world have been spooked by government debt levels in Europe and the US. The G7 and the European Central Bank put out statements late on Sunday designed to calm those fears. Joining us now is the Australian Treasurer, who is Deputy Prime Minister and Finance Minister, Wayne Swan. What can stop this slide?

TREASURER:

I think it is very important that we all work together internationally, particularly those countries that are members of the G20. As you are aware, the adjustment in Europe is indeed painful and of course it is the same in the United States. But here in the Asia-Pacific, growth is still strong, but we are not immune from the fall out of all of these events. So as you indicated, our stock market is down yet again today.

HOST:

It does seem though that investors and traders are simply writing off what the G7 and the European Central Bank have been saying overnight, which was designed to calm the very fears which we are seeing reflected in those falls?

TREASURER:

Well that’s why I think it is very important that countries work together. It is very important to take a deep breath, think about our situation and make sure that over time we get the right policies in place. That is why it is very important that international coordinating bodies, or European bodies, are working closely together. Because as we have seen, when you have a major event such as we saw in the United States over the weekend, that does have an impact on markets. And of course, that affects everybody irrespective of the underlying strength in their economy.

HOST:

It does look as though, if you like, the wool has been lifted from many around the world’s eyes and they can now see that the structural deficit problems in Europe and the United States are so deep that serious adjustments are going to have to be made?

TREASURER:

Well we’ve been dealing with these challenges through the G20 for some time now and I think it has been acknowledged that there will be a long and painful process of adjustment in both the United States and in Europe. And what is really important in the face of that is that countries put together credible fiscal consolidation plans from the long term point of view. It is not necessarily the case that they will need to consolidate quickly, but markets will need to be assured that they have a fiscal path ahead that is credible and capable of being implemented irrespective of political fortune.

HOST:

But talk of working together and implementing those sorts of structural changes is all very well. But clearly we haven’t seen the action which traders and markets would respect enough to stop this slide in value?

TREASURER:

Well quite clearly you have seen in the case of the USA a situation where there has been political gridlock in the Congress, and that has had a dramatic impact on confidence in markets around the world. And some would say the same about Europe. So, what we have got to do over time is to make sure that there is a clear pathway ahead, and we need to work towards that internationally.

HOST:

So there is a lack of political leadership in Europe and the United States on this issue right now?

TREASURER:

No, I’m not saying that at all. What you’ve seen is gridlock in the Congress in the United States, and I think that has a dramatic impact on markets. But I think what we have seen is eventually those matters were resolved. And as you have seen, markets have judged harshly some of the decisions that have been taken by officials in Europe. The most important thing for them to do was to clearly communicate their objectives to markets.

HOST:

But briefly, that’s not happening at the moment, how bad do you think this is going to get in terms of the market activity, we have got Asian markets already sliding today, European markets opening in about an hour from now?

TREASURER:

Well, as I said before, I think the most important thing for people to do is to be calm, is for decision makers to approach these matters methodically, and to get on with doing the job.

HOST:

Wayne Swan, Australian Treasurer, thank you very much for joining us live on the program.