World in danger zone, says Swan
Treasurer concedes deepening global problems put the Gillard government's surplus promise at risk.
Treasurer concedes deepening global problems put the Gillard government's surplus promise at risk. FEARS the developed world's finance ministers will fail to deliver a credible solution to Europe's debt crisis have nervous investors ready to sell stocks when Australian trade begins this morning.As expectations mounted that Greece would default on its government debt, Treasurer Wayne Swan conceded that deepening global problems put the Gillard government's promise to return the budget to surplus by 2013 at risk.Mr Swan, who early this morning was crowned Euromoney Finance Minister of the Year at a ceremony in Washington, said the hit to global growth would flow through to Australia, cutting tax revenue.''It makes it tougher to come back to surplus,'' Mr Swan said in an ABC TV interview.Mr Swan described the mood among his peers in Washington as one of ''sober realism''. The global economy had entered a ''dangerous new phase'' and Australia was ''not immune", he said.US markets rallied on Friday after a week of losses, but yesterday futures market traders predicted the Australian market would open lower today rather than follow the lead from overseas.A fall would extend the $18 billion in losses racked up last week as the benchmark S&P/ASX 200 Index plummeted to a two-year low.Grattan Institute economist Saul Eslake said investors were looking for ''comprehensiveness, coherence and credibility'' from a statement due from Group of 20 finance ministers, including Mr Swan, before the market opened this morning.The ministers met to seek a solution to the crisis as billionaire investor George Soros warned Greece might not be able to avoid default and US Treasury Secretary Timothy Geithner said failure to confront the crisis risked ''cascading default, bank runs and catastrophic risk''.''I think ministers here are determined to ensure appropriate tools are available, particularly through the International Monetary Fund, to assist the Europeans if that is required,'' Mr Swan said.But IMF managing director Christine Lagarde warned that if the global economy worsened, her fund's capacity to give loans would ''pale in comparison with the potential financing needs of vulnerable countries and crisis bystanders''.Mr Eslake said the G20 response had to be ''backed up by sufficient firepower''.''Otherwise we will see things go south fairly quickly,'' he said. ''All those aspects have been lacking from the response to the European debt crisis so far.''Clearly what the markets are looking for from the G20 is some kind of indication they understand the nature of the problem.''He said the market might not get much time to digest what finance ministers said.''If they're trying to agree on a form of words by dinner time their time, that will be not much before our market opens,'' Mr Eslake said.Mr Swan said Australia was ''essentially strong, but we can still get flow-through impacts in terms of confidence. We face the current bout of global instability from a position of strength with very low debt, low unemployment, a strong banking system and a plan to bring the budget back to surplus - although obviously current global events make that task much tougher,'' he said.Australians seeing the stockmarket at its lowest level in two years are "living with the hangover of the global financial crisis", he said.''We still live with the ongoing impact of the global recession.''Coalition finance spokesman Andrew Robb said Mr Swan needed to ''level with the Australian people about our vulnerability in the event of the global economy worsening, and worsen it will''.''Our weakened position compared with four years ago is obvious to everyone except Mr Swan and Prime Minister Gillard.''Shelving the carbon tax is a must. It is hanging like a sword of Damocles over business and households, killing confidence.''Mr Swan said he would continue with the carbon tax despite the global turmoil because it would be good for Australia in the long term.