No Respite Down-Under From Eurozone Crisis

Any hope that travelling to the other side of the world would offer some respite from the daily diet of the Eurozone crisis has been rudely dashed.

Here am I, blogging from Sydney, Australia, and finding no escape. Globalisation has never seemed more real. The euro is always with us. Australian TV and newspapers have been reporting every move in the shifting politics of the crisis, with much coverage of the Greek referendum debacle, the pressures on Berlusconi and his (departing?) government and statements by Merkel and Sarkozy, Barroso and Rehn.

There is an Australian angle to the stories, in particular because the Aussies, just like Europeans, are having to rein in public spending to retain market credibility. A lot of the debate comes close to home. And of course they fear the consequences of a global recession which could bring commodity prices tumbling and so undermine an economy which now depends on its vast mineral wealth with massive exports to China, Japan and other markets in Asia. (We counted 22 huge bulk carriers lying offshore waiting to be loaded with coal at the Hay Point terminal, en route to China).

One aspect which fascinates Australians is the role that China might play in bailing out the euro – a further indication that Australia feels so much part of Asia and watches with fascination every move that China makes. The future of the two countries is deeply intertwined. The idea that China might even provide unilateral support for the euro outside the IMF framework provokes special interest. “Europe goes cap in hand to China” is a typical headline.

Prime Minister Julia Gillard enjoyed her time at the Cannes G-20 meeting and received wide domestic coverage for her commitment to increase her country’s IMF contribution to support the euro. Grumbles from the opposition that it was throwing good money after bad did not go down well. As several commentators remarked, Australia may need IMF support one day, and should show solidarity with Europe.

It’s clear that the future of the euro has profound consequences right across the world. The mood among political leaders has changed. The non-Europeans at the G-20 meeting put intense pressure on EU leaders for their failure to act effectively. This has reinforced a new toughness among European leaders, especially Merkel, Sarkozy and the leaders of the EU institutions.

The emergence of the Frankfurt Group, consisting of seven heads of government including Angela Merkel and Nicolas Sarkozy, IMF chief Christine Lagarde, Barroso, Rehn and new ECB head Draghi is an indication of a new ruthlessness.

The crushing rejection of Prime Minister Papandreou’s referendum idea by other EU and world leaders was perceived by some as a denial of democracy, which brings us back to the classic question of what representative democracy really is. All governments in the western world are facing decisions which are deeply unpopular with their electorates, yet have no choice but to persist. It’s a tough time to be a politician and it looks as if Berlusconi’s departure (if it really happens) will follow changes of government in Portugal and Greece.

One of the most telling pieces, reproduced in The Australian newspaper on November 7, was an article by Matthew Parris from the London Times (both papers part of the Murdoch empire) which sees collusion in the western economies between the politicians and the people, what he calls the Great Evasion, whereby we all demand more than we can really afford and our political leaders find ways of keeping the good times rolling.

The game’s up, says Paris. The direction is down for the rest of our lives as the West gives way to the emerging economies. “Whether there’s any way of getting people to vote freely for economic decline has, I believe, yet to be tested”.

The question for Australia, I guess, is whether they are on the same journey, becoming no more than a source of raw materials for the emerging economies of Asia, or whether they can be part of a more dynamic Asian success story.