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A financial storm gathers: one we can weather

By James Dunn - posted Tuesday, 16 August 2011

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.


However, let me focus on the economic situation; which has been saturated by much doom and gloom from the media of late. Clearly the world economy, or large parts of it, is once again in deep trouble and there is talk of another serious global recession ahead, this time with more serious consequences for Australia.

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.


The real issue is political, getting American politicians to face the reality of a changing world order, and to accept the need to make changes so that American society can adjust to it. But tackling what is really a contentious issue for Americans is hardly an election winner, so we are unlikely to see any serious moves to revitalise the American economy.

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.

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About the Author

James Dunn is 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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