THE DISTILLERY: Austerity angst

Perhaps the biggest problem with Europe's debt problem – apart from the scale – is that the austerity agreements to deal with it always needed the consent of the electorates they hurt. The business commentaries this morning warn not only of more economic elections to come in 2012 in the wake of Nicholas Sarkozy's defeat in France, but an inevitable backlash in nations where austerity is biting the hardest.

Firstly, The Australian's John Durie says the global economy should prepare itself for a spate of elections that could throw austerity platforms into disarray.

"The narrow victory of Francois Hollande in France was more evidence of the backlash against incumbents in this period of crisis. This year, on Citigroup's numbers, 59 countries, or about one third of the world's 193 nations, will have state, local or national elections. This gives the punters plenty of chance to express their concerns but is not exactly the recipe for stability or good policy. Arguably this gives Wayne Swan the chance to show himself as Mr Responsible, eschewing the chance for flashy reform to concentrate on the myriad nitty-gritty decisions needed to open up the economy."

Business Spectator's Stephen Bartholomeusz argues that admittedly flawed anti-austerity candidates always looks more attractive when the austerity plans of their opponents are put into practise.

"It was perhaps inevitable that the austerity programs, agreed to by Germany, France, the European Commission and the European Central Bank and imposed on the rest of the eurozone, would fail. Popularly elected or anointed governments in member states like Greece, Spain and Italy had become wildly unpopular, with their populations rioting in the streets, as the European recession had worsened. The prospect of forcing reductions in budgets deficits across the eurozone below 3 per cent by 2013 at a time when unemployment in countries like Greece and Spain is above 20 per cent and youth unemployment is approaching 50 per cent was destined to create political upheaval and a derailing of the fiscal strategy.”

The Sydney Morning Herald's Ian Verrender says the indecision over whether Europe should spend or cut its way out of trouble simply reinforces that this is still an enormously complicated problem.

"Suddenly, we are back at square one. A year and a half of tumult settled just a few months ago as eurozone leaders cordoned off the economic cauldron bubbling away in Greece. Everyone knew it was a temporary solution, that longer term Greece would not be able to meet its debt commitments even after the huge write-down. But the timeframe was expected to be years rather than weeks. The concept of austerity is lauded mostly by those who have never been forced to strain under its yoke. Those opposed, such as economist Paul Krugman, believe austerity has failed to deliver anything other than entrenched unemployment and misery. The gap between the Keynesians – who want the world to spend its way out of trouble – and those demanding even tighter cuts only serves to highlight one simple truth: no one has an answer.”

In matters closer to home, The Sydney Morning Herald's Michael Pascoe runs through the Reserve Bank's quarterly policy statement and offers a few insights.

In company news, The Australian Financial Review's Chanticleer columnist Tony Boyd speculates about the likelihood of a BHP Billiton writedown to its US shale gas assets, as well as the size of such a writedown. The Age's Adele Ferguson scrutinises the statement from Leighton Holdings chief executive Hamish Tyrwhitt, claiming that the estimated 51-day delay to the Brisbane Airport Link won't impact its full year profit. The Australian Financial Review's Matthew Stevens follows the coal true believers as Nathan Tinkler reveals his next pick, the little-known Blackwood Corporation. Fairfax's Insider columnist Ian McIlwraith isn't so sure that Alesco Corporation shareholders should be holding out for an increased bid from Dulux Group as hard as they are. And The Australian's Criterion columnist Tim Boreham says there's some value to be found in Australian industrials.

And finally The Age's Madeleine Heffernan carries a comprehensive guide to what will be contained in the federal budget and what's been speculated – very useful. Speaking of which, this column expects tomorrow an almighty avalanche of analysis of Treasurer Wayne Swan's all-important federal budget. Return to The Distillery on Wednesday morning for a special federal budget batch.