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Keating Reflects

October 24, 2011

Some of these themes are picked up by Paul Keating in an interview with Paul Kelly in The Australian to mark the publication of a book of Keating’s speeches. Keating reflects that, “What is happening in China knows no precedence in world economic history. Never before have 1.25 billion people dragged themselves from poverty at such a pace. China is now half the GDP of the US and incomes have risen by a factor of 10.”

In this spirit, I had told the Labor people in Bathurst and the Young Labor people in Sydney on the weekend that the force of globalisation was too phenomenal to be resisted by any Australian government.

I liked a couple of other observations from Keating.

He said that the euro should have only constituted Germany, France and the Benelux Nations, not the peripheral countries around the Mediterranean. He said Greece should never have been allowed in. The weaker economies were only given entry, Keating said, because President Mitterand and the French wanted more numbers to balance the power of newly united Germany. As a result, the eurozone was flawed from the outset.

Keating is absolutely right to talk about the blunder of extending NATO to the Russian border. Sheer recklessness, he said, “Sensible policy would have included a place for Russia in the new world order but that didn’t happen. So Russian liberals were pushed to one side by Russian nationalists. In a sense, the US has created Vladimir Putin.”

Clinton, Keating said, is responsible for this.

It was a major blunder of the immediate post-Cold War era.

  1. Ric Sissons permalink
    October 24, 2011 11:15 am

    Paul Keating’s comment at the weekend on Greece and the Eurozone was interesting but more important is how to deal with the pressing reality given they are in the Eurozone. The chapter on Greece in Michael Lewis’ new book Boomerang spells out the problem in staggering detail. As he also does for Ireland as well. For a start the European banks will have to take a loss on their investments in Greek bonds and the standard of living in Greece will have to fall.

  2. Jeffrey FRANCIS permalink
    October 25, 2011 2:00 am

    The problem with Greece is that it makes the same things as the Chinese,Germany sell things the Chinese need, like sophisticated Machine Tools to make things in mega volumes.Cutting edge technology with cheap Labour.Thing are only going to get grimmer for Spain as well.How to rebuild rust belts in Detroit, Glasgow, Belfast etc. is what keeps me awake at night.The Clintons are the baby boomer eqivalents of Herbert Hoover,piss them off.

  3. TerjeP permalink
    October 26, 2011 6:51 am

    The solution in Greece is two fold. First they should default on their unsecured public debt. That will take much fiscal pressure off their throat. It will also limit their capacity to borrow further and force them to balance the budget. Secondly they should embark on widespread microeconomic reform and liberalisation of their economy.

    I don’t personally think Greece should leave the euro. Leaving would create a bunch of new challenges for the government and risk a return to inflationary policies. Inflation is low in Greece today because of the euro and they should hold onto that. Likewise the other nations have nothing to gain from Greece leaving the euro. If anything Greece should leave the EU and it’s excessive regulations but keep the euro and it’s price stability.

    The fear regarding a default by Greece has little to do with concerns about the Greek economy. The fear is that there will be knock on consequences for banks in the rest of Europe. In particular French banks. The notion that banks can lend to governments without risk is a myth that should be put to bed. A Greek default would be painful in the short term but in so far as it leads to more prudent lending practices it would be a good thing.

    The euro is a good invention. What is not good is the notion of nations becoming their neighbours keeper when it comes to public debt. The current financial stabilisation efforts in the EU may provide some short term satisfaction but they are not a healthy long term development. They impede the sort of learning by lenders and borrowers that would lead to improved financial prudence. Every bailout begets the next one and all the time the taxpayer pays.

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