Heaven knows why
Prime Minister Gillard has rubbed salt into the wounds of European nations reeling from weekend credit downgrades, declaring they had it coming to them for avoiding tough decisions.
Speaking after Standard and Poor’s stripped France and Austria of their prized triple-A ratings and downgraded Italy, Portugal, Spain, Cyprus, Malta, the Slovak Republic and Slovenia Ms Gillard said the moves were the “price to be paid” by governments who had put off reforms.
“For too many years, European governments have deferred the nation-building productivity-enhancing reforms which Australia has made the foundation of our dynamic and resilient economy,” she said in a Sunday statement.
“In stark contrast to Europe,” Australia had strict fiscal rules that would return it to surplus in 2012-13.
European leaders should “swiftly undertake structural reforms to boost their economic potential and lift growth”.
“They must implement credible medium-term plans to put their budgets on a sustainable footing, because taxpayers rightly expect governments to manage their money prudently,” Ms Gillard said.
But leading Australian economist Shane Oliver warned that swift action to repair European budgets could cut growth further...
‘‘Fiscal austerity leads to economic deterioration and budget deficits blown out. It has the effect of worsening the economic outlook,’’ the AMP economist told the Herald.
Shadow treasurer Joe Hockey lambasted Ms Gillard for the intervention saying it was “a little rich” for the prime minister to lecture Europe.
“She and her treasurer have presided over a massive blowout in Australia's debt and turned strong budget surpluses into record deficits. Voters won't forget pink batts, cash for clunkers, building the education revolution and $900 cheques to dead people,” he said.
The United States has had its credit rating cut from triple-A to double-A in August without an intervention by the prime minister.
The downgrades leave Germany the only major economy using the euro to maintain a triple-A rating. Portugal and Cyprus have had their ratings cut to junk status.
The decision endangers the triple-A rating used by the European Financial Stability Facility to borrow cheaply and lend to struggling eurozone members. France is the Fund’s second-biggest guarantor.
Ahead of the downgrade the head of the French central bank Christian Noyer appealed to Standard and Poor’s to strip Britain of its top rating before France.
"They should start by downgrading the United Kingdom, which has higher deficits, as much debt, more inflation, and less growth than we do, and whose credit is collapsing,” he said.
British Deputy Prime Minister Nick Clegg told French Prime Minister Francois Fillon the suggestion was "unacceptable" and asked him t "calm the rhetoric."
The UK has been spared the latest downgrade, not being part of the so-called eurozone that that uses the shared European currency.
The Australian dollar is at close to an all-time high against the euro after the downgrades, buying 81.41 euro cents.
Published in today's SMH and Age
FROM THE PRIME MINISTER:
The credit rating downgrades we've seen in Europe reflect the price to be paid by national governments who have put off the tough reforms needed to secure strong and sustainable long-term economic growth.
For too many years, European governments have deferred the nation-building productivity enhancing reforms which Australia has made the foundation of our dynamic and resilient economy.
European leaders must swiftly undertake structural reforms to boost their economic potential and lift growth.
They must implement credible medium-term plans to put their budgets on a sustainable footing, because taxpayers rightly expect governments to manage their money prudently and global financial markets demand responsible fiscal management.
That's precisely why when we put in place our recession beating stimulus, we also put in place the strict fiscal rules that have us on track to return to surplus in 2012-13.
This is in stark contrast to Europe which is facing deficits as far as the eye can see and net debt 10 times that of Australia.
In fact, Australia just recently achieved the coveted, gold plated AAA-rating from all three global ratings agencies - for the first time in our history - the contrast with Europe could not be more stark.
While global volatility will inevitably impact us here at home, Australians can take confidence in our rock-solid economic fundamentals: we’ve got strong growth, contained inflation, low unemployment and very low debt.
The Government will keep taking the tough decisions needed to secure a strong, productive and sustainable Australian economy for the future.
. Economic outlook dangerous, unless you're in Australia - OECD
. A slow motion train wreck - McKibbin
. Eurozone debt: Who owes what to whom?