An insight into Australia's possible future lies on studying events in Europe and the United Kingdom. Policy pursued to date by the present Australian government will lead inexorably to a Southern European economic outcome. It has happened in some states of Australia previously and can happen again, nationally.
What is not often recognised is that sovereign debt in Australia is not just at the Federal level. As I remarked last week, it is also at the State level. Add in the unfunded liabilities which are not reported as part of government debt. If you do, as reported by Christopher Joye (Australian Financial Review 18th May), then you will see Australian governments debt at around 45% of GDP, not the 11% net debt widely reported internationally.
Australian governments debt has to double only once more, and the country ends up with an aggregate debt position similar to that of the problematic European countries. If you think it can't happen, then please think again. It already is, and the track to economic serfdom was layed in 2007.
Parts of Australia's non-resources economy are already in recession, and the plateauing now occurring in the resources sector will accelerate that slowdown. So would loss of the present AAA credit rating on Australian government debt. If you think that Australia could not possibly have a European style unemployment crisis, then think again. Some districts of the Australian cities already have it, and especially amongst young people and males above 50.
I have spent a lot of time studying German political and economic history. One of the insights I can share is the commonality of objective of various German governments in recent years including those those of the left wing. Not so long ago, the German Greens were part of a mainstream German government. Interestingly, not the hysterical shrieking wraiths that seem to populate the environmental movement in this part of the world, but serious and pragmatic thinkers like Joschka Fischer who led the German Greens for two decades. He became Foreign Minister and Vice Chancellor in the Federal Government.
It was that government that set the German economy on the path of flexibility (including in the labour market) that underpins economic stability and comparative prosperity in that country today.
Fischer's contributions from then are echoed today. He helped to create a European polity based on mutual trust, solidarity, the rule of law and compromise. He does not believe that austere economic policies and structural economic reform alone will solve the economic problems being experienced in the eurozone. These problems stem from profligate social expenditures, unfunded by a consistent tax base, and restrictive regulatory practices, supported by devaluing national currencies over decades.
Fischer believes that the solution lies also in a banking, fiscal and political union: in effect what we have in the United States and Australia, and what Winston Churchill proposed in 1945 - the United States of Europe. The real crisis in the EU is not financial: it is political. Whether Angela Merkel can bring the peoples of Europe together sufficiently for what could be the Final Act of this play remains to be seen. If she can, then monetary stability of the German model could be the result.
It is a pity that given Australia does not have these impediments to conquer, it is nonetheless following the southern european path of unfunded policy profligacy. The outcome, if left unchecked, will be the same.
As I wrote last week, younger Australians will have good cause to look back in anger at the 2007-13 period and the opportunity costs to them and the nation of poor public policy.
No comments:
Post a Comment