Keating predicts smaller eurozone

THE former prime minister Paul Keating says Greece, Spain, Portugal and Italy will depart the eurozone rather than face decades of austerity, and has called for Australia's $1.4 trillion of superannuation savings to be put to use by banks.

THE former prime minister Paul Keating says Greece, Spain, Portugal and Italy will depart the eurozone rather than face decades of austerity, and has called for Australia's $1.4 trillion of superannuation savings to be put to use by banks.

Speaking at an investment conference in Melbourne, Mr Keating described the Opposition Leader, Tony Abbott, as a "pre-Copernican obscurantist" and "dumb" for his relentless opposition to the carbon tax, but said Labor had failed to create a compelling narrative for its time in office.

Now working at the advisory and private equity firm Lazard, Mr Keating also labelled the German Chancellor, Angela Merkel, as "intellectually limited" and the Republican Party in the US as "completely mad".

In a spirited question and answer session, Mr Keating said the European "elites" had failed to recognise that Europeans preferred nationalism to a fiscal union, and would be better off waving the Mediterranean nations goodbye.

He said one way to reduce Australian banks' reliance on skittish international funding markets, and reduce risks for the country's $1.4 trillion super sector, was for super funds to finance the housing mortgages of banks.

"In other words, our banks should be doing less touting on the international markets and fulfilling their funding at home by having the superannuation assets, some of them directed towards the books of the Australian major four banks," Mr Keating said.

"I would prefer that than having the banks out there funding half their books in these soggy international markets," he said.

Mr Keating said that although between 55 per cent and 58 per cent of the big four banks' funding came from deposits, this would probably fall to about 50 per cent once the current savings boom ended.

This would leave the big banks - ANZ, Commonwealth Bank, National Australia Bank and Westpac - more exposed if credit markets seized up again during another crisis. During the depth of the financial turmoil in 2008, Australian banks were able to use the Commonwealth's AAA rating for a fee.

The Australian Bankers' Association chief, Steven Munchenberg, said that while the association did not agree with the idea that super funds should be directed to do as suggested, it did agree that "super funds should look more carefully at fixed interest products, particularly as we've got more people approaching retirement".