Prime Minister Julia Gillard says the credit downgrade of European nations was the result of avoiding hard decisions.
PRIME Minister Julia Gillard says the credit downgrade of European nations was the result of avoiding hard decisions.
Speaking after Standard & Poor's stripped France and Austria of their prized triple-A ratings and downgraded Italy, Portugal, Spain, Cyprus, Malta, the Slovak Republic and Slovenia, Ms Gillard said the moves were the ''price to be paid by national governments who have put off tough reforms''.
''For too many years, European governments have deferred the nation-building productivity-enhancing reforms which Australia has made the foundation of our dynamic and resilient economy,'' she said.
Their leaders should ''swiftly undertake structural reforms to boost their economic potential and lift growth''.
But leading Australian economist Shane Oliver, of the AMP, warned that swift action to repair European budget deficits could cut growth further.
''Fiscal austerity leads to economic deterioration and budget deficits blown out. It has the effect of worsening the economic outlook,'' he told The Age.
Ms Gillard called on the leaders to ''implement credible medium-term plans to put their budgets on a sustainable footing, because taxpayers rightly expect governments to manage their money prudently and global financial markets demand responsible fiscal management''.
Shadow treasurer Joe Hockey lambasted the Prime Minister
for the intervention saying it was ''a little rich'' for the Prime Minister to lecture Europe.
''She and her treasurer have presided over a massive blowout in Australia's debt and turned strong budget surpluses into record deficits. Voters won't forget pink batts, cash for clunkers, Building the Education Revolution and $900 cheques to dead people,'' he said.
The downgrades leave Germany the only major economy using the euro to maintain a triple-A rating. Portugal and Cyprus have had their ratings cut to so-called junk status.
The decision endangers the triple-A rating used by the European Financial Stability Facility to borrow cheaply and lend to ailing euro zone members. France is the facility's second-biggest guarantor.
The Australian dollar is close to an all-time high against the euro, buying 81.41 euro cents.
Frequently Asked Questions about this Article…
What did Prime Minister Julia Gillard say caused the European credit downgrades?
Julia Gillard said the credit downgrades were the result of European governments avoiding hard decisions and deferring productivity-enhancing, nation-building reforms. She called the downgrades “the price to be paid by national governments who have put off tough reforms.”
Which countries did Standard & Poor’s downgrade in the recent round of ratings changes?
Standard & Poor’s stripped France and Austria of their triple-A ratings and downgraded Italy, Portugal, Spain, Cyprus, Malta, the Slovak Republic and Slovenia. The article also notes Portugal and Cyprus were cut to so-called junk status.
How could the S&P downgrades affect the European Financial Stability Facility (EFSF) and borrowing costs?
The downgrades endanger the triple-A rating that the EFSF uses to borrow cheaply and lend to struggling euro‑zone members. That matters because France is the facility’s second-biggest guarantor, so changes to guarantor ratings can affect the EFSF’s cost and access to funding.
What warning did AMP economist Shane Oliver give about fiscal austerity in Europe?
Shane Oliver of AMP warned that swift, heavy-handed action to repair European budget deficits could further cut economic growth. He said fiscal austerity can lead to economic deterioration and even blow out budget deficits, worsening the economic outlook.
How did Australian opposition figures react to the Prime Minister’s comments on Europe’s downgrades?
Shadow treasurer Joe Hockey sharply criticised the Prime Minister’s intervention, calling it 'a little rich' for her to lecture Europe while, he said, the government had presided over a large increase in Australia’s debt and turned surpluses into record deficits. He also referenced past programs such as pink batts, cash for clunkers, the Building the Education Revolution and $900 cheques to deceased people.
Which euro‑zone country remained the only major economy with a triple‑A rating after the downgrades?
After the S&P decisions in the article, Germany remained the only major economy using the euro to keep a triple‑A rating.
What did Prime Minister Gillard urge European leaders to do to restore confidence and growth?
Gillard urged leaders to swiftly undertake structural reforms to boost economic potential and lift growth, and to implement credible medium‑term plans to put budgets on a sustainable footing so taxpayers and global financial markets can see responsible fiscal management.
Did the European downgrades affect the Australian dollar, and what was its level against the euro?
Yes — the article notes the Australian dollar was close to an all‑time high against the euro, buying 81.41 euro cents, a relevant market move for investors watching currency and cross‑border exposures.
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