Greek debt deal will ease economic pessimism: Swan

TREASURER Wayne Swan hopes the prospect of a deal between Greece and its bond holders will help ease the excessive pessimism that is hurting the Australian and global economies.

Reports over the weekend suggest Greece and its private investors are close to a deal that will significantly reduce the country’s debt and pave the way for a much-needed bailout of 130 billion euros ($A161 billion).

“If that deal is finally done that certainly is a significant advance because, you see, one of the challenges we have in the global economy and one of the challenges we have here locally is there is too much focus on the downside risk,” Mr Swan told ABC radio on Monday.

He said the European bond holder issue had been dragging on for some time and had led to downward revisions in global growth from the International Monetary Fund (IMF) and the World Bank.

“But it’s also led to excessive pessimism … we shouldn’t let the downside risk that we see in Europe blind us to the fundamental strengths in our economy.”

Mr Swan said the federal opposition and the media had been overly negative about the downgrades by these international institutions, as had been the reporting of recent domestic labour force data which left the jobless rate at a still low 5.2 per cent.

“You would have sworn … that somehow we had an unemployment level which was back at the early 1990s of 10 per cent or 11 per cent, similar to what they’ve got in Europe and the United States.”

He said while the mid-year budget review released in November showed future jobs growth wouldn’t be as strong as predicted, the outlook for the labour market was still far stronger than in just about any other developed country.

Opposition treasury spokesman Joe Hockey said Mr Swan’s changed employment outlook was another broken government promise, on top of the carbon tax and poker machine reform.

Concern about the economic outlook has raised speculation the Reserve Bank of Australia (RBA) will cut the cash rate again next week, but retail banks are warning they may not pass on the rate reduction in full.

Mr Swan remains unimpressed by this stance and will continue making “frank and fearless comment” about the important issues associated with interest rates, despite leading banking figures saying political interference is a threat to the banking system.

Australian Greens MP Adam Bandt said the banks should stop crying poor over funding costs as they were some of the most profitable in the world.

“They should be passing on any RBA cut announced next week,” he said in statement.

Still, Mr Swan won’t be following the path of France, which is introducing a 0.1 per cent financial transaction tax from August.

French President Nicolas Sarkozy used primetime TV on Sunday to announce the controversial “Robin Hood” tax, an impost several other European nations may implement.

Mr Swan said such a tax “would slow down economic growth by raising the cost of capital for all Australian businesses, not just the banks”.

Acting Greens leader Christine Milne said her party had long advocated the need for the tax.

Doing so “would not only raise funds to fight global poverty but could also stabilise financial markets by discouraging very short-term speculative financial transactions”.