Australian economy could benefit by Eurozone woes

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The Eurozone’s unstable economic and financial conditions could bring it to collapse in the future but if it ever happens, the collapse could benefit Australia as it could be seen as a capital safe haven.

Former treasury official, Ken Henry, said during an interview at ABC’s 7:30 that “the events occurring in Europe will also predate large capital movements, indeed they are, this extreme capital market volatility, not extreme I shouldn’t overstate it but there’s considerable market volatility at the moment, very important question. If the worse thing happens where does the capital go? It is quite possible of course on this occasion some of that capital will come into Australia, it is quite possible, it is quite possible on this occasion Australia will be seen as offering something of a safe haven for global capital movements. That’ll be the first time in the post war period but it’s possible to imagine it now.”

Henry, who worked ten yearsin the treasury, has also been former Prime Minister Rudd’s adviser during the GFC.

When asked if, “Europe’s collapse could be a good thing for Australia?” Henry said it depends, that being an economist, he would say yes or no as, as Australia could have access to international capital. “It’s maybe even likely that any capital flow associated with problems in Europe would make it easier for Australia to fund it current account deficit, on the other hand it would mean a high valued Australian dollar and as you know that’s an issue already causing some concern for some sectors of Australian [economy],” stated Henry.

The Reserve Bank of Australia shared in its minutes of its monetary policy meeting that there’sstill hope for Europe stating, “In Europe, aggregate measures of consumer confidence had improved and exports had picked up.”

Henry shared the reason why he believes the Eurozone will not survive, is the failure of sharing wealth among member states.”Personally, I’ve never seen how the euro would work. I’ve never seen how it could be expected to work without a genuine fiscal union,” stated Henry.

Henry shared the difference between the Eurozone and Australia. ”People in Australia understand that without our system of horizontal fiscal equalisation, without fiscal transfers from one state to another state, this federation would simply not hang together.”

”People in Australia understand that, people in Europe have not understood that and they need to understand it,” added Henry.

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