THE DISTILLERY: Austerity averse

Jotters try to predict what will happen to Greece as austerity mostly gets the thumbs down at the G8, while BHP's Nasser is under the microscope.

German Chancellor Angela Merkel’s vision for a European recovery, via austerity, is at odds with most of the G8 and Greek voters. If the eurozone is to be saved Greece needs a little more carrot and a little less stick but, whatever happens, Australia will need China to insulate from another breakout in GFC jitters. That’s what Australia’s business commentators are talking about this morning.

We start with The Australian Financial Review’s Robert Guy, who has examined the communiqu from the G8 nations and finds Merkel is kind of the odd one out.

"If anything, the communique highlighted the continuing schism between Germany and some of the world’s largest economies on how to best manage the European crisis by noting that ‘the right measures are not the same for each of us’. Strengthening the hand of countries such as France, under new president Francois Hollande, pushing for an easing of the ‘austerity at all costs’ approach favoured by Germany, were President Barack Obama’s comments that ‘there’s now an emerging consensus that more must be done to promote growth and job creation right now’. As leader of the world’s largest economy, Obama’s comments carry weight (even if the US economy is not exactly the picture of fiscal rectitude) and further wedge Merkel’s Germany as an outlier and impediment to stabilising growth in the region. It also underscores Washington’s fear that continuing instability in Europe will reverberate through the US economy, threatening growth and jobs in an election year.”

The Australian Financial Review’s Alan Mitchell suggests that there might have been a time where letting Greece slip from the eurozone would have been in the interests of broader Europe, but this is no longer the case.

"The Americans, the British, the French – just about everyone except the Germans – are right: what Europe needs now is more growth. And it should not be impossible. The eurozone’s sovereign debt burden is no greater than that of the United States. In both cases the debt is just over 90 per cent of gross domestic product. It’s just that the US has a better economy and is doing a better job of managing its debt problem. There was a time when it might have made more sense for Europe to let Greece unilaterally default and for Germany and France to concentrate on saving their banks, which were heavily implicated in the Greek tragedy.”

Whatever the outcome, where does Australia sit? The Australian’s economics editor David Uren points out that the signs in Australia show the Greek situation is not at some sort of tipping point just yet.

"There is no sign of the wholesale withdrawal of funds by foreign investors desperate to plug funding gaps in their home markets which led to flight of capital from Australia in 2008 and 2009. Indeed, foreign investors have been taking advantage of the lower Australian dollar to step up purchasing government bonds. For all the political yapping about the government's spending pushing up interest rates, the 10-year government bond yield hit its lowest level in more than 100 years with Friday's low of 3.06 per cent below any trade since Federation. Investors are not worried about returns. They want safety and they see it in an AAA-rated Australian government bond."

And The Australian Financial Review’s Chanticleer columnist Tony Boyd is persuaded that the consequences of a Greek exit from the eurozone would be so dire that it’s simply not going to happen. However badly things do go, Boyd finds some reassuring conclusions from one Liu Li-Gang.

"Liu , who is ANZ Banking Group’s chief economist for greater China, says provincial governors are promoted through the Communist Party ranks based on the economic performance of their provinces. There is an inbuilt incentive for provisional governors to exceed whatever economic growth number is issued by Bejing such as the 7.5 per cent figure issued for 2012. He says provinces in central and western China are bound to grow faster than provinces in the affluent eastern region. The GDP per capita in central and western China is two-thirds of the levels in the eastern coastal regions. Liu says any evidence of a slowdown in China this year will prompt swift government intervention.”

Sticking with the Greece question, The Sydney Morning Herald’s Jessica Irvine warns the most dangerous way for Greece to exit the eurozone would be by accident through a run on its banks. The longer the uncertainty about its bailout package continues, the more likely this scenario becomes.

In other headline-grabbing news, The Sydney Morning Herald’s Michael Pascoe and The Australian’s John Durie continue their analysis of the BHP Billiton speeches from last week. The Sydney Morning Herald’s Ian Verrender explores the philosophy of BHP chairman Jacques Nasser, while his Fairfax colleague Michael West has a lot of fun at Nasser’s expense.

While we’re on mining, The Australian’s economics editor David Uren warns that some of our major mining projects will have to be delayed if, as some suspect, the resources boom is coming to an end of sorts. Meanwhile, The Sydney Morning Herald’s Ross Gittins continues to hit the government for budget obfuscation.

In technology news, The Australian’s Criterion columnist Tim Boreham can’t make much sense of the Facebook valuation, while The Age’s Malcolm Maiden explains how Australia is kidding itself when it laments the loss of IT talent to Silicon Valley. The Age’s Adele Ferguson says local retailers have been slow adopters of new technology – namely apps – to their detriment.

In a separate story, Ferguson says Asahi Holdings is suffering from a serious hangover due to its acquisition of New Zealand’s Independent Liquor Group.

And finally, The Sydney Morning Herald’s Ross Gittins runs through a speech by Treasury boss Dr Martin Parkinson

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