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

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

27 September 2011

Interview with Fran Kelly

ABC Radio National

27 September 2011

SUBJECTS: European sovereign debt; global economy; Australian budget

KELLY:

Treasurer, thanks very much for joining us.

TREASURER:

Good morning Fran.

KELLY:

Wayne Swan, speculation continues over whether European leaders are committed to a multi-trillion euro stability fund.  Can you sort this out for us?  Is it happening?  Is that the plan?

TREASURER:

Well, European leaders made a series of commitments on July 21 including the stability fund and a number of other commitments and there was a long discussion about these matters at the G20 meeting as well as the IMF meeting. And the European leaders said they were absolutely committed to putting these measures in place as soon as possible, and certainly we do need to see that as soon as possible because what's happened in the mean time is that there's been a big hit to confidence globally and that is leading to a slowing in developed economies.  We've got a whole debate about sovereign debt risk and the banking system in Europe, and we've got volatility in global markets.  So I think everybody needs to have some confidence that the Europeans are moving quickly to implement those commitments.

KELLY:

But no one seems to have that confidence and part of the reason is an uncertainty about what the plan is.  Can you confirm that European leaders, including the French President Nicolas Sarkozy and German Chancellor Angela Merkel are on board with a plan for a multi-trillion dollar fund to boost the fund to that degree?

TREASURER:

No, I can't confirm that, Fran.  There would be a variety of discussions taking place.  They've made their commitments on 21 July.  Everybody is keen to see them do that and it is very important that they implement those commitments.  There's some discussion in the media but I certainly can't confirm that. 

I can't speak for European leaders but what I can speak for is the rest of those ministers at those meetings who were very keen to assist European leaders and finance ministers should they require further assistance.  The International Monetary Fund has also made it clear they'll work with European leaders and we've got a finance ministers' meeting of the G20 in Paris in a few weeks time and I'm sure these matters will be discussed again.

KELLY:

A few weeks time though but as you, yourself, said there's no time for delay.  There is urgency here if the global economy is on the edge of a new abyss, why didn't the weekend meetings deliver action?

TREASURER:

Well, because in the first instance European leaders have to deliver on their commitments in Europe and the only way that those can happen is that they have to go through their domestic parliaments.  So if you've been looking at all the material you'll see that there is legislation going through various European parliaments about those commitments.  But we've made it very clear we'll work with the Europeans as quickly and as urgently as we can to ensure the most effective solutions are in place for the short term and the long term.

KELLY:

As you said overnight, you described this crisis as one that everyone has seen coming and it requires leadership, political will and intelligent domestic decisions.  How much of that did you see on display, particularly political will around the table?

TREASURER:

Well, I think it was pretty important to have a frank and upfront discussion with European finance ministers over the weekend and I think those discussions certainly led to a better understanding of what the Europeans were doing and also the opportunity for people from other countries to say to the Europeans that we stand ready to assist in a collective way.  You see back in 2008 what was really important was strong coordinated and decisive action and the G20 acted as a whole.  At the moment the Europeans have got some commitments, we want to see those implemented and we stand willing to work with them to do more.

KELLY:

You're being very open hearted about this.  Are you frustrated at this political inaction?

TREASURER:

Well, I think a lot of people are fairly frustrated with the way in which this has developed because the whole issue of sovereign debt in Greece first surfaced something like 18 months ago and I think there is a degree of frustration with the implementation of commitments over time and that's why I think this meeting this weekend was pretty important because other leaders had a chance to talk to European leaders about these issues.

KELLY:

Their inaction though, their lack of political will, it could sink your surplus, couldn't it?

TREASURER:

Well, I think the most important thing is they step up to the plate but I'm determined to put in place a surplus in 2012-13.  We made that commitment.  We're determined to do it but it's not made any easier by what's going on in terms of global growth.  It's just commonsense to observe that if global growth slows that will have some impact on Australia, that will hit budget revenues and it will have an impact on our budget.  But we are determined to come back to surplus in 2012-13.

KELLY:

Okay but your determination remains there, but if we face the threat of global stagnation which I think you were talking about overnight, if Europe doesn't get its act together, then there will be no return to surplus.  That's obvious, isn't it?

TREASURER:

Well, no I'm not agreeing with that at all, Fran.  I also made the point very strongly in the speech that we're yet to see how all of these factors will play out.  That's why it is important the Europeans do step up to the plate and promptly implement all of these commitments.

KELLY:

And what do they need to do beyond this stability fund?  I mean, in Europe and America interest rates are already low, governments are heavily indebted, no fiscal or monetary options left really to stimulate the economy.  So what do they need to do?

TREASURER:

Well, it's not just the Europeans but they need to meet their commitments in terms of fiscal consolidation in some countries.  They need to put in place a medium-term fiscal strategy and ditto in the United States.  It would be really good if we can see that proposal from President Obama pass the Congress.  You see the problem we've got at the moment in terms of global growth is two of the big economic engines in the global economy misfiring. 

Now, we are in the best place in the world of just about any developed country to deal with all of that.  There's been something like 750,000 jobs created in Australia in the past four years and we avoided recession.  From our perspective what we need to see is global growth continue to strengthen, not weaken.  That's why it's important to be involved in this discussion about the global economy and what's happening in Europe and in the US because what you've got in both those zones is political gridlock.  We don't have that in Australia.

KELLY:

And what's your mood after being involved in these discussions?  Are you more gloomy now in terms of the future of the global economy?

TREASURER:

No, I'm slightly more optimistic that the Europeans will make some progress, Fran.  It is very important that they make progress in terms of global confidence so we can deal with the volatility that we see in markets.  So I'm very hopeful that those finance ministers and other officials will go home and make substantial progress in terms of their commitments.

KELLY:

Of course as soon as they get home they face the question from their domestic populations about why should we throw more good money after bad?  That's the problem.

TREASURER:

Well, I wouldn't characterise it like that.  Dealing with these challenges is an investment in growth and an investment in jobs and stability but it's not up to me to make those explanations for European leaders for Europe.

KELLY:

Just before I let you go Treasurer, I know you've got a plane to catch, but the issue of whether some countries should leave the euro zone.  Is there, can you confirm talk of this orderly default for Greece or is there still a thought that some countries should be allowed to quit or should be forced to quit the euro zone?

TREASURER:

No, all of the discussion that I was in over the week did indicate that the Europeans wish Greece to be in the zone and the discussions were all on that basis.

KELLY:

Treasurer, thank you very much for joining us.

TREASURER:

Thank you.