Europeans must stick to economic commitments: Swan

TREASURER Wayne Swan has vowed to use international forums such as the Group of 20 to keep European leaders to their word in pursuing policies that grow their economies and encourage employment.

Asian financial markets were somewhat more stable on Monday after this weekend’s Group of Eight (G8) summit, held at US President Barack Obama’s retreat Camp David, which acknowledged that growth and jobs must be the “imperative” for the global economy.

The G8 includes three countries in the eurozone – Germany, France and Italy.

The Australian sharemarket rose 0.8 per cent, after dropping sharply last week on renewed fears that Greece might be kicked out of the single currency union, while the Australian dollar made a modest recovery to 98.55 US cents after hitting a six-month low 97.95 cents on Friday.

Mr Swan said the global economy faced “very profound” challenges that had been underscored in recent weeks by further events in Greece and across the European community.

“The prime minister and I will continue through the G20 to ensure that European leaders meet their commitments and they do put jobs and growth to their forefront of their decision-making,” Mr Swan told parliament on Monday.

He reiterated that the government had forecast a 0.75 per cent contraction in Europe this year in the budget.

He said Australia was not immune from the global instability.

“But we do need to remember that we have some of the strongest economic fundamentals amongst developed economies,” he said.

Economic growth and jobs had been the government’s “imperative” from day one of the global financial crisis, he said.

Commonwealth Securities chief economist Craig James said fear rather than fundamentals had driven financial markets over the past two months.

“Investors remain worried about how the European crisis will play out, and are especially fearful about the risk of Greece exiting the euro area,” he said.

However, from Australia’s perspective the latest euro crisis has thrown up some positives, he said.

While consumers would bemoan a weaker currency, it was a major positive for the business sector.

“Not only has the dollar weakened, but business and home loan borrowers will benefit from a drop in fixed-term lending rates to historic lows,” he said.

Financial markets are also betting on the strong chance of variable rates being cut further.

Markets are priced for a 70 per cent chance of the cash rate being cut by another 50 basis points, to 3.25 per cent, when the Reserve Bank of Australia meets on 5 June.

However, the government shouldn’t expect borrowers will be rushing to thank it if rates are cut again.

The latest weekly Essential Research online poll found that 35 per cent do not believe the government should take credit for the recent fall in rates, while 27 per cent said they should take “a little” credit.

Only 19 per cent said it should take a fair amount of credit, while a slim seven per cent said it should take “a lot”. – AAP

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