Hugh McDermott for Prospect

A financial storm gathers: one we can weather

by James Dunn

Recently it has seemed as if a grey cloud has swept across the world economy with the major players battling crises in Europe and North America, with worrying implications for the rest of us.

As a relatively small player it seems we, Australia, are watching helplessly. But times have been particularly difficult for Barak Obama lately, who struggled to end the impasse with the fiery Republican opposition in Congress; achieving an outcome that impressed few.

It culminated in a downgrading to AA plus by Standards and Poor. To make matters worse for Barak Obama, another disaster in Afghanistan has claimed some 31 US troops, casting more doubts about just when the Coalition forces are going to disengage from a conflict that nobody wants around any longer. Even the Libyan operation is at risk of bogging down.

The Gillard government has been weakened by its precarious control power here in Canberra. At times like this we need a nationally united approach, but in Australia that is improving impossible for the Government under unrelenting attack from an Opposition desperate to claim an office that Tony Abbot loudly claims should have been his anyway.

In these conditions could the Government manage another economic crisis? This time it would be so beholden to those on whom it depends, in order to remain in office that its decisions would probably be even more hesitant, as it were, dominated by survival instincts.

This is a rather gloomy scenario, but let me say at the outset that I am more confident than some of our leading economists in our capacity to ride out the crisis. The underlying problem is more about politics than economics, and Australia is a minor player.

The US situation is really the most worrying consideration, with Obama's opposition out to end his leadership at next year's presidential election. Last week it virtually forced on him a decision which will really do little to tackle the root problems of the present crisis which calls for firm and courageous political action.

What we are getting is economic tinkering that will merely postpone the crisis, while the root problems simply worsen. Raising the debt ceiling merely offers some breathing space.

Another problem area is the EU, where the world's most advanced form of regional economic and political integration may be in danger. The living-beyond-one's-means disease has claimed Greece, Ireland and Portugal, whose economies are now being bailed out by the richer members of the EU, principally Germany and France, who have long been the mainstay of European integration.

Now, Italy, an EU foundation member, is in trouble; together with Spain. In these circumstances is the EU in danger of collapsing? The crisis has caused uneasiness among the 25 members of the EU, especially among some of the newer members. As for Britain, it may be standing apart, but its own economy has been weakening.

These problems are serious matters but let's not panic.

The EU remains sound, while the United States is still by far the world's most powerful economy. Its ills, however serious, will not necessarily plunge Australia into recession thanks to our own international diversification and strength.

It is a serious matter though, reminding us that the problems underlying the last damaging crisis have not corrected the fundamental problems Americans and others face in the 21st century. Nor can the Asian tigers gloat, for their prosperity has been riding on the affluence of the richer countries.

We surely would not want to see the collapse of the EU, about which there has been some speculation. I believe that Europe will ride out the storm and perhaps become even stronger. The European Union is after all the world's most inspiring and enduring example of the economic and security benefits of political integration. That process, which began in the aftermath of World War II, was not just about the war torn continent's economic recovery. It was also about creating a permanent environment of peace.

Most Europeans will never forget their long history of conflict, going back a thousand years, culminating in the most disastrous conflicts in human history which cost some 80 million lives, the destruction of whole cities and even the threat of nuclear war.

The EU held promise of the creation of a political and economic environment that would end the risk of war, shared prosperity and the added promise of the world's most advanced community in terms of the practice of democracy and observance of human rights. No other region has approached such enlightened goals. The problems faced by the EU today are minor compared the situation in most parts of the world.

Indeed the end of Europe could spell the end of the United Nations, indeed the end of civilisation, an outcome to be prevented at all cost

James Dunnis a former Australian consul in East Timor who wrote the definitive book on East Timor’s history in the mid-80’s Timor: A People Betrayed and updated in 1996. In 2001-2002 he was the UNTAET Expert on Crimes Against Humanity in East Timor.

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