Interview with Ross Westgate, CNBC
Subjects: Euro crisis, China, Asian economic growth and trade, G20, Doha/WTO, sanctions against Iran
World Economic Forum, Davos, Switzerland
Transcript, E&OE, proof only
27 January 2012
ROSS WESTGATE: Thanks very much indeed for joining us, we've been witnessing the debate this morning, the CNBC debate, with foreign ministers from Germany and Spain and the economics minister as well from France. In some ways it's sort of more of the same. It's laying out the plan; this idea of this fiscal compact; this ten years of adjustment.
There are plenty of people we've spoken here to say that this sort of German plan that you've got to have fiscal discipline first, is going to drive a deflationary spiral into countries like Spain, Italy that they can't absorb. Do you think we are on the right track or not?
MR RUDD: Well this is a major debate for Europe, but it's also a major debate for the world, because if Europe goes into any form of deep recession, the impact globally and for jobs and employment around the world and for growth is big.
I think there is a danger right now of Europe talking itself into an early economic grave. As I come as an outsider, but a friendly outsider, and listen to the discourse in Europe, and coming from Asia as we do in Australia, it seems that there is far too much emphasis on the negative and not enough emphasis on the potential upside.
As to the solution, the contours of that have been laid out. The firewall: there's a debate about dimensions and whether it's purely European or European plus IMF. Fiscal compact: recently clear in terms of the consensus which the Europeans will have to deliver in the next week and then you've got the domestic economic reform program like Monte has announced in Italy.
I think the key element, in terms of getting it right, is to make sure you have what we in Australia would call a structural adjustment on the way through.
You've got to sustain the politics of this, the political economy of Europe has to travel with these necessary economic reforms.
So, therefore, when the big reforms hit Italy and Spain, what do you do in order to sustain the political support necessary to make sure that these reforms are implemented and they're not just on paper? That's the core question. A political economy question rather than one of just pure economics.
WESTGATE: I wonder how this is feeling for you in Australia at a time when we're also questioning the growth in China. Particularly because the Australian dollar is really a proxy - tradies use the Aussie dollar as a proxy for what happens in China.
RUDD: Well, our two economies are quite linked and the Chinese economy has performed well for the last 30 years. I think those who start saying that China is about to fall apart need to take a long look at economic history. The Chinese leadership has been very skilled at adjusting its course to make sure that demand is held up, that growth is sustained and that jobs are created - 25 million new ones each year, just to deal with those coming into the workforce.
We think from our part of the world that Asian demand still remains solid, that growth in China remains solid — it may come down a notch — but frankly, looking at it globally, we must make sure that Europe gets itself right.
It's not just the danger of Europe itself, turning in on itself, we need Europe's economic force in the world, but also Europe's foreign policy voice in the world rather than one which becomes increasingly focused on its own internal struggle.
WESTGATE: One of the great possibilities for global growth is that you get a lot more inter-Asian trade and actually, instead of just selling goods to Europe and America, that that really grows. That's the good side of it, the bad side of course is that that's going to increase an awful lot more isn't it, tensions about currencies because everybody can't have a low currency. Are you worried about increased currency tension within Asia?
RUDD: One of the fundamental laws of economics is that everyone can't have a surplus at the same time and that it's impossible for everyone to have either a high currency or a low currency at the same time. These things do change. That's why we believe in the floating currency rate regimes, one of the great benefits to the Australian economy over the last twenty years.
I think it's important for our friends in Europe to realise that intra-Asian trade is already hugely important to the overall growth of demand across Asia - it's not just China. It's also the continuing strength of Japan; Korea — a trillion dollar-plus economy; Indonesia — rapidly becoming a trillion dollar economy; Australia — a 1.4 trillion dollar economy. The overall economic integration of the region is huge. China looms as probably the number one or two trading partners of most of the countries of our part of the world.
Sure, there will be economic difficulties to be resolved within our neighbourhood, but I have to say that as the centre of global economic activity moves inextricably to Asia and the Pacific and Indian ocean regions, it is going to be important that our friends in Europe become not just locally-focused but understand what is radically happening under their feet in the other part of the world and we want Europe engaged in that.
WESTGATE: You've talked about how important it is to complete the Doha round, to get global growth going. It's a bit of a long shot isn't it? I mean, the WTO has got its hands full just making sure we don't get any more protectionism.
RUDD: As my good friend Bob Zoellick said to me just before — President of the World Bank — the best form of defence is offence and translated into Australian English and British English, it's better to be on the front foot than the back foot if you're playing a game of cricket.
And the bottom line is this, sure keeping a lid on the can of protectionism is really important. But if we're right now in a new European and global economic environment where monetary policy is already lax, it's expansionary, but having little effect, fiscal policy is necessarily disciplined as people return their national balance sheets to order, the thing about trade policy liberalisation is that it is an additional real measure to free up a new increment of growth. And so therefore, when the G20 leaders meet in Los Cabos in June, I believe this represents a new opportunity to open up a new increment of global growth and particularly for the emerging economies.
WESTGATE: Final question, you're advocating more sanctions against Iran and oil exports. How worried should we be about an escalation of tensions in the Middle East because of what is going on?
RUDD: Iranian policy is what's the problem here. None of us seek any unnecessary disagreement with the government in Tehran, but there are lines to be drawn and when you've got a government defying the International Atomic Energy Agency, defying the UN Security Council in terms of its nuclear weapons program, the rest of the international community can't simply stand idly by. You need to draw a line and say this is unacceptable.
And as far as the oil sanctions are concerned it's sent a direct message to other members of the regime and to the rest of the body politic in Iran and to the people — there is a price to be paid for this. We want to change Iranian behaviour so that we can bring them back into full commerce with the rest of the world, but this is just unacceptable.
WESTGATE: Minister, thank you very much.
RUDD: Thanks for having me on the program.
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