So we can all stop being experts on Greek politics, at least for a few months.
The pro-euro New Democracy party has claimed victory in the weekend’s Greek elections, which means the country can return to the path it was on before the government was thrown into crisis.
Greece will now accept its bailout, and the crushing austerity measures that come with it. The people of Greece are in for a very tough time, but markets are breathing a sigh of relief.
The possibility of a Greek exit from the euro is now diminished, at least in the short term.
How Greece copes with those crushing austerity measures in the coming months and years is a question that remains difficult to answer.
The best case is that Greece essentially takes the bitter medicine that has been forced on it and keeps quiet, muddling through as the economy enters a severe downturn. Based on the constant rioting we’ve seen in the last two years, that doesn’t look likely.
It’s not hard to understand why the Greek people will keep protesting the austerity measures. It’s for that reason that economist Nouriel Roubini – the man who forecast the American housing market collapse and the global recession of 2008-09 – argues fresh political turmoil could mean the New Democracy government falls within six to 12 months as the economy enters depression. The next elections, Roubini argues, will see the leftist parties take control and pull Greece out of the euro to end austerity.
That’s the worse-case scenario and it pays to remember Roubini’s nickname is Doctor Doom.
For today at least, this political crisis in Greece has been temporarily resolved and the global financial system has got some breathing space. And that’s a bloody good thing – markets have been on tenterhooks for weeks waiting for the June 17 election, and now that they are over a bit of normality is most welcome.
Attention will now swing to Mexico, where the G20 is meeting to discuss the fate of the world.
These meetings are typically little more than useless talkfests, where the right words are spoken and little action is taken. Prime Minister Julia Gillard is on the ground and has made the case for the crippled economies of Europe to find more permanent solutions to Greece’s problems.
Gillard and Treasurer Wayne Swan have written an open letter to the G20 arguing that austerity is not enough.
“I will be saying to my European counterparts they need to be focusing on further banking and fiscal integration in Europe, they need to be working on the recapitalisation of distressed banks and … focusing on growth,” Gillard said this morning.
“Ultimately the answer to this economic crisis is growth. It is growth that enables you to keep jobs and investment … and put your budget on a sustainable footing.”
Given the G20 will be dominated by European issues, Gillard’s focus is reasonable, and she and Swan clearly feel confident in their own economic position to urge change in Europe.
But with the Greek election out of the way, I wonder if Gillard and Swan should be working to turn Australian eyes away from Greece and towards Asia.
In his weekly economic note released yesterday, Wayne Swan made some really important points about how Australia should be setting its sight on Asia in a more meaningful way.
Here’s a snapshot:
- Swan says the “proportion of world GDP within 10,000 kilometres of our shores has doubled in the last 50 years to over a third. That share is likely to rise to around half of global output by 2030”.
- Thanks to Asian demand, Australia has half a trillion dollars of mining projects in the pipeline.
- Mining exploration spending topped $1 billion in the March quarter; the first time spending has been more than $1 billion in a single quarter.
- By the end of this decade, Asia could have another 1.2 billion consumers.
- Since 2007 when Labor came to office, employment in Australia has increased by 836,000 jobs, while globally 27 million people have become unemployed.
It’s a pretty compelling illustration of Australia’s strong economic fundamentals and the power of Asia.
Yes, there is no doubt that what happens in Europe matters, particularly as our Asian trading partners are so reliant on their own trading with the euro zone.
And, yes, Australia’s Asian-driven rise does create issues such as the strong Australian dollar.
But Swan is right – given the rapidly growing share of global GDP being generated on our doorstep, why aren’t we more focused on Asia? Why isn’t the Federal Government pushing this line a lot harder?
Alan Kohler had a lovely line about the Prime Minister’s business forum last week, where the government told business to see the economy as glass half full, not half empty. “What rubbish. We should work out how much is in the glass and just stick with that.”
That’s spot on – business leaders have to operate on facts, not sentiment. But the fact is Australia’s Asian opportunity does make its economic glass a lot closer to half full than we might think.
And that’s something business leaders should be talking about.