Oct. 18 (Bloomberg) -- Australian Treasurer Wayne Swan called on European nations to deliver on pledges made to Group of 20 officials to prevent another financial crisis that threatens to reverberate worldwide.
“I’m now confident that my European colleagues understand the seriousness of the threat and that they need to speak with one voice,” Swan said in prepared remarks for a speech yesterday in London after he attended weekend G-20 talks in Paris. “Most crucially, they need to deliver at their meetings this coming weekend.”
Swan’s comments reflect an unresolved European sovereign- debt crisis and a tumble in shares that erased $10 trillion worth of equities worldwide last quarter. G-20 finance ministers and central bankers endorsed parts of an emerging plan to avoid a Greek default, bolster banks and curb contagion. They set an Oct. 23 summit of European leaders in Brussels as the deadline.
“I’m very hopeful that we will see the political will in the leadership of Europe to deliver on that at this meeting this coming weekend,” Swan said in response to audience questions at the event hosted by Australian Business. “I’d be very fearful if they don’t deliver in some of those key areas as to what the outcome would subsequently be for markets and corporates.”
The Reserve Bank of Australia left its benchmark interest rate unchanged at 4.75 percent two weeks ago, a developed-world high, citing “very unsettled” global markets and signs of weaker domestic growth. The central bank, which has kept borrowing costs unchanged for 11 months, signaled less concern a mining boom will boost wage pressures and indicated there’s more scope to cut rates if necessary.
Australia has “fiscal and monetary room to move in the future if that is required,” Swan said, adding the nation has “tiny exposures” to European banks. “We have perhaps more levers to pull than any advanced nation to help withstand the fallout from any worsening of the European situation.”
Driving Australia’s economy is demand from developing nations including China and India for iron ore, coal and natural gas. That has spurred the nation’s currency, which reached $1.1081 on July 27, the highest level since it was freely floated in 1983.
“We will continue to experience relatively high commodity prices for some time to come,” Swan said. “That reflects strong demand from Asia.”
While parts of Australia’s economy “are still under pressure from a cautious consumer, a high dollar and ongoing global uncertainty, we’ve recently seen some really encouraging spots in the domestic economy,” said Swan, named as Euromoney magazine’s finance minister of the year last month. “Just the other week we saw another solid rise in retail sales -- the strongest back to back retail performance in nearly two years -- and very healthy export growth.”
Australia’s sales abroad surged in August to a record A$28.4 billion ($29.1 billion) on coal shipments, and the nation’s A$3.1 billion trade surplus was the second-widest on record, a government report two weeks ago showed.
At the heart of the current strains in the global financial system are economic imbalances that policy makers need to address to prevent repeat crises, Swan said. Countries running deficits need to make their government budgets more sustainable, while nations with surpluses should refocus their economy towards domestic demand, he said.
“Part of that does require a commitment to market-based exchange rates, which goes to the core of the action plan that leaders are considering” for the G-20 meeting in Cannes, France, on Nov. 3-4, Swan said.
--With assistance by Scott Hamilton in London. Editors: Brendan Murray, Garfield Reynolds
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