Good evening.
I'd like to thank the European Australian Business Council for inviting me to speak here this evening.
I would also like to acknowledge Australia's Ambassador Designate to the European Union, Belgium, Luxembourg and NATO, the Hon Dr Brendan Nelson, members of the diplomatic corps, representatives from the public service and those here from academia and business.
I feel that I am fast becoming a bit of a European specialist this year. In June, I attended the official ceremonial welcome of the King of Spain, in September I represented the Prime Minister to welcome the President of Hungary and this month, I was at the Swedish Embassy to speak to the European Union Heads of Mission.
So, it's good to be here among friends.
Tonight's address comes at a time when the global economy is emerging from the deepest and most synchronised downturn in the post-war period.
Now is the perfect opportunity for me to discuss the importance of Australia's relationship with Europe and the significant policy challenges that both countries face as a result of the global economic crisis.
Australia's relationship with Europe
Australia and Europe have a strong and enduring relationship, based on shared values, commitment to democracy and cultural affinity, with nearly 90 per cent of Australians claiming European ancestry.
It hasn't always been easy to extract the practical cooperation and tangible benefits these strong links would suggest.
But, in 2008, Australia's Prime Minister, Kevin Rudd, and European Commission President Jose Manuel Barroso made a commitment to a new era in bilateral relations through the development of a Partnership Framework.
This Framework outlines the areas in which Australia and the European Union can work together to achieve shared objectives.
A key focus of the Framework is trade.
The European Union is Australia's largest trade and investment partner – and it's worth noting the scope of this investment relationship.
As at the end of 2008, investments between Europe and Australia were valued at $872 billion.
The EU's share of that was $567 billion, 33 per cent, of all foreign investment in Australia.
Australia had $304 billion invested in Europe – 30 per cent of all Australian investment overseas.
More foreign direct investment into Australia came from Europe than anywhere else - $133 billion, or 34% of total FDI stocks.
In terms of all foreign direct investment into Europe, in 2007, Australia ranked seventh as an FDI source, totalling almost $43 billion.
We also share similar views on many international trade issues.
Recognising this, the Partnership Framework promotes and supports building a multilateral, rules-based trading system, and facilitating the bilateral trade and investment relationship.
The Framework also includes a shared commitment to a successful outcome in the WTO Doha round of multilateral trade negotiations.
The Partnership Framework also recognises science, research, technology and innovation are fundamental to promoting economic prosperity, and seeks to strengthen cooperation between Australia and the European Union in these areas.
Regular updates to the Framework are crucial to reflect and drive the development of our relationship in the face of current and future challenges.
And one of the most notable challenges we are facing is emerging from the global economic crisis.
Global economic crisis
The crisis was able to spread so easily due to the very nature of the 21st century global economy.
Global trade just before the crisis was at its highest level in at least 50 years and financial institutions act on a global scale not seen before.
But globalisation is beneficial – while it allowed the infection to spread, it has also disseminated the cure.
In some areas of Europe, the downturn has been particularly harsh.
But this would have been worse if Australia and the European Union, and indeed the world, had not responded to the crisis as quickly and significantly as they did.
Australia and EU responses
Almost immediately after the initial market disturbances, global central banks began implementing measures to foster liquidity.
The European Central Bank, for example, introduced several measures, including:
- supplying as much liquidity as banks asked for;
- expanding the list of collateral they accepted in market operations;
- providing liquidity for longer periods than usual; and
- intervening directly in the longer maturity segments of financial markets, by buying covered bonds.
In addition, the global coordination of liquidity enhancement was typified by the temporary reciprocal currency arrangements implemented by the US Federal Reserve and 14 other central banks, including the Reserve Bank of Australia and the European Central Bank.
These arrangements provided better access to US dollar liquidity for non-US financial institutions.
Global central banks also began a rapid reduction in their policy rates.
The severity of the crisis also led governments to implement substantial fiscal stimulus to support the economy.
The Australian government swiftly implemented a number of discretionary fiscal measures to support growth and jobs, as well as making the necessary infrastructure investments to drive future prosperity.
With the Euro area a party to around 30 per cent of global trade, Europe's own fiscal responses were particularly important.
Some of the larger European fiscal responses were those of the UK, Germany and Spain, with discretionary stimulus of between 1½ and 2½ per cent of GDP in 2009.
And it appears to be working.
The global economy is now forecast to grow by over 3 per cent in 2010, over half a per cent more than estimates the IMF constructed just three months earlier.
And the Euro area has recorded economic growth of 0.4 per cent in the September quarter of 2009 - the first quarter of growth since the March quarter 2008.
However, despite the positive signs in both financial markets and economic data, there are still risks to the global recovery.
For both Europe and the rest of the world, there is a risk to growth if stimulatory monetary and fiscal policy is unwound before private sector demand has sufficiently recovered.
It is important that we maintain our policy support until the recovery is assured.
Australia and EU exit strategies
Australia and the European Union have both publicly committed to transparent and credible processes to exit from policy support.
For monetary policy, the non-standard policy measures enacted by the European Central Bank were designed with exit strategies.
And many of them will phase out naturally.
Australia has already begun to unwind monetary stimulus, with the Reserve Bank of Australia increasing the target cash rate over the last two months.
For fiscal policy, Australia and many of the European Union member states delivered stimulus measures that were temporary in nature.
In Australia, the impact of fiscal stimulus on growth peaked in the middle of this year and is already phasing down. The phased withdrawal of the fiscal stimulus means that the stimulus will detract from growth in the March quarter of 2010.
Just last week, the European Commission announced that fiscal policy exit in European Union member states should start in 2011 provided that a self-sustaining recovery is demonstrated.
The Commission has also noted the importance of the Stability and Growth Pact as an anchor for fiscal exit strategies.
Strengthened national budget frameworks are needed to support long-term sustainability in Europe.
The Commission also stated that 2011 is the year that European Union economies should begin, or pursue, budget consolidation.
Australia, the EU and the G20
The actions of Australia and the Union have been supported through the coordinated efforts of the G20 economies.
At the G20 Finance Minister's Meeting in St Andrews earlier this month, the G20 committed to continue implementing their stimulus plans until recovery has clearly taken hold, but also committed to develop further strategies for managing the withdrawal from support measures.
The G20 also launched the Framework for Strong, Sustainable and Balanced Growth.
Europe, with five seats at the table, has a key leadership role in implementing the Framework and influencing the policy actions of the G20.
And this leadership role will be heightened in 2011, when we welcome France as chair of the G20.
It is crucial that Australia continue to work with Europe to meet the important challenges on the G20 agenda, and to ensure that global economic recovery is strong and sustainable into the future.
Thank you.