Oct. 25 (Bloomberg) -- The European Union needs a comprehensive plan to avoid a “protracted recession” that will damage global growth and Australia’s economy and budget, Treasurer Wayne Swan said.
European leaders, who hold a second summit in four days tomorrow, are seeking an agreement on bolstering the region’s rescue fund, recapitalizing banks and providing debt relief to Greece to avoid contagion spreading to Italy and Spain.
It is “critical that we see European leaders take decisive action that deals fundamentally with their sovereign debt crisis,” Swan told a Commonwealth Business Forum in Perth today. “Anything short of a comprehensive plan risks a protracted recession in Europe with obvious implications for the global economy and our own economy and budget.”
Swan’s comments reflect an unresolved European fiscal crisis and a tumble in shares that erased $10 trillion worth of equities worldwide last quarter. The Reserve Bank of Australia this month left its benchmark interest rate unchanged at 4.75 percent, a developed-world high, citing “very unsettled” global markets and signs of weaker domestic growth.
“While European leaders are finalizing their strategy and building their war chest, we should remember that they still need to fight the war,” said Swan, named last month as Euromoney magazine’s finance minister of the year.
“Beyond any announcement this week, Europe needs to put in place the reforms to gain the confidence of financial markets, make the tough decisions to put their budgets back on track, and implement the structural reforms to drive growth and build resilience in their economies,” Swan said.
The Australian government has pledged to return the nation’s budget to surplus in 2013, an election year. The goal will be harder to achieve as the economy, the only one in the developed world to avoid a recession during the 2009 global downturn, is buffeted by global financial-market strains and weaker growth in trading partners.
“As is the case in Europe, all developed nations need to put their budgets on a credible path, while supporting growth where they can,” Swan said today. “The big emerging market economies need to rely more on domestically generated demand and move toward market-determined exchange rates.”
RBA Governor Glenn Stevens said in August that China’s currency is undervalued using “any objective gauge” and remains “a significant distortion in the global system.”
Demand for iron ore, coal and natural gas from China, the world’s second-biggest economy, is driving Australian growth.
Some 150 business leaders are gathering in Perth for the three-day forum, before the Commonwealth Heads of Government summit. The Commonwealth is an association of Britain and many of its former colonies, including India, Australia, New Zealand and Canada.
--With assistance from Scott Hamilton in London. Editors: Edward Johnson, Brendan Murray
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