RBA looks into the euro crisis

The RBA’s deputy, Ric Battellino, gives us a run through of what’s going on in the eurozone.

And it looks like Australia should be able to “get through it” without too much damage.

Over recent months we have all watched with concern the growing financial problems in Europe. The problems are multi-dimensional, involving excessive government debt, weak banking sectors, slowing economic growth and marked differences in competitiveness across countries within the euro area. They have become the main threat facing the global economy and the international financial system.

It is hard to tell how and when the problems will be resolved. In the meantime, turbulence continues in global financial markets and most forecasters are now predicting a very significant weakening in the European economy over the coming year as government spending is cut back, credit tightens and confidence declines. Given the size of the European economy and financial system, it will be hard to avoid adverse consequences for other parts of the world, though the extent of these spillovers remains an open question. At this stage, most forecasters think that growth in the world economy will be only a little below trend in the coming year, though with the risk of a significantly worse outcome.

Australia, like other countries, will be affected by the events in Europe, but its strong government finances, healthy banking sector and relatively limited direct trade and financial exposures to Europe make it one of the countries best placed to weather the situation. Australia is also fortunate to be subject, simultaneously, to a resources boom that is resulting in unprecedented investment and therefore helping to sustain economic activity.

Meanwhile, the Euro keeps sliding.

The euro dropped to an 11-month low against the dollar Tuesday, weighed down by fears of more rating downgrades in the euro zone, with the greenback supported by reduced expectations of further monetary easing following the Federal Reserve’s less pessimistic assessment of the U.S. economy.

    • Winston Smith
    • December 14th, 2011

    Is it just me, or is that RBA story from another planet?
    This government is borrowing two billion dollars a week.
    We depend on China buying our coal and iron ore.
    And if Europe falls off its perch, who are they going to sell their stuff to?
    I have to admit that in my opinion, this mob hasn’t got a clue.

    • I’m hearing you. We’ve almost quadrupled our debt since the ALP took office, Europe teeters, the US is stalled…

      I’m not exactly brimming with as much confidence as Battellino either, mate.

      I just hope he’s right that what happens in Europe won’t affect us too much.

      It’s funny. Most of the corporations – the smart money if you will – are cashed up to the hilt all the while as governments everywhere are blowing cash faster than you can say meltdown.

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