So France has elected a Socialist government and Greece hasn’t voted for anything. Importantly, all the rhetoric around the European polls are focused on fighting against the politics of austerity. The problem with this is that voting against austerity measures mean that Greece is less likely to meet the revenue raising requirements which will prevent a third bailout, towards the end of June. If such proves to be the case, the often-feared contagion effect is more likely and the impact on not just European markets but all global markets is likely to be significant.
But should we care? Do more European countries need to learn the hard lessons that countries like Estonia had to learn following the 2008 European financial crisis? Will these new anti-austerity measures simply produce the result which will work best for the fast failure and fast recovery that is likely from investment renewal following economic failure? The problem with this failure-oriented thinking from the perspective of Australia is that the implications of a sale of Australian assets held by European financial institutions is utterly dependent on who buys those assets. If Australia buys them back it could be beneficial. If it doesn’t, we could be beholden unto other economic pulls.
The reality is that the impact of full-scale failure of the Eurozone is dependent on too many variables for a predictable financial result. So not matter what Wayne Swan comes up with in the budget tonight, to assume that a stable financial situation is going to protect Australia against global economic risk is irresponsible. This doesn’t mean that Australia needs to protect its current (stable) revenue sources, rather it means it needs to invest that much more in new industries. Spreading risk is better than protectionism. And investing in an innovation culture is the best kind of risk management. The best response to the rejection of the politics of austerity, is embracing the politics of investment.