Europe finance ministers’ meeting cancelled

Written By: - Date published: 9:45 am, October 26th, 2011 - 6 comments
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The meeting of European Finance Ministers set for Wednesday that was supposed to put in place the framework for the Euro support has been cancelled. Certainty appears ever more elusive. According to Wolfgang Muenchau in the Financial Times, in any case the proposed plan depends on “leverage”. Leverage is what has caused the debt crisis in the first place.

It is time to look very seriously at the downside scenario to the PREFU. Treasury says:

The main drivers of this downside scenario are:
 European leaders do not manage to contain the ongoing sovereign debt challenges in the euro area, leading to a significant spike in global risk-aversion and an associated increase in market funding costs.
 With little scope for fiscal and monetary policy in the developed world to step in as it did in 2008, a protracted global recession ensues. The United States and euro area economies contract by 1.5% and 2.0% respectively in the 2012 calendar year, and stage relatively weak recoveries thereafter. Monetary policy around the globe stays supportive for longer.
 An increase in funding costs triggers housing market corrections in a number of Asian economies, exacerbating their economic downturns. Annual Chinese GDP growth slows to 6% in 2012 (versus an average of over 10% per year in the past decade). In this scenario, aggregate output in New Zealand’s trading partners is approximately 3% lower than the main forecasts in the year ending March 2016. The cumulative loss of
trading partner growth over five years is 13.5% of one year’s annual GDP. In a deliberate effort to capture the downside risks to the global economy at present, this magnitude is around twice as severe as the IMF’s downside scenario from its September 2011 World Economic Outlook.

As for National’s hollow slogan to “Balance the books sooner”, this is what Treasury says are the consequences:

Government’s fiscal position deteriorates as a result
Overall, core Crown tax revenue in the scenario is a cumulative $14.5 billion lower through to the year ending June 2016. In contrast to the main forecasts, the total Crown operating balance before gains and losses remains in deficit throughout the forecast period, registering a deficit of 0.5% of GDP in the year ending June 2016 compared with a 1.2% of GDP surplus in the main forecasts. Accordingly, core Crown net debt in the downside scenario rises to 35% of GDP in the year ending June 2016 (from 20% of GDP in 2011) – some 7% of GDP higher than in the main forecasts.

Treasury have covered their backside in this so-called “downside scenario”. In the light of what is happening in Europe and the US, it should be seen as the most realistic scenario. It is definitely time for our media to take off the rose-tinted spectacles and ask some hard questions of all the politicians in the run-up to the election.

6 comments on “Europe finance ministers’ meeting cancelled ”

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  1. Afewknowthetruth 1
    26 October 2011 at 10:47 am

    As long as GDP is used to measure economic activity everything must get worse.

    • Draco T Bastard 1.1
      26 October 2011 at 3:44 pm

      True but I’d refine it a bit: As long as the movement of money is seen as the economy and the drive for profit is its sole motive then everything must get worse.

  2. Kty 2
    26 October 2011 at 11:12 am

    Hang on. havent we got one of our super goblins over there, on a secret mission to fix the worlds financial woes. That seems like a good enough reason to cancel any meeting.

  3. vto 3
    26 October 2011 at 11:23 am

    Look, governments break promises all the time.

    Why not extent that heritage to promises to repay loans? Don’t repay them.

    A rough hammer to clear the decks, but hey, governments also have a proud heritage of using rough hammers to solve other problems e.g. red zone buyout offers in Chch, bailouts for select finance companies.

  4. travellerev 4
    26 October 2011 at 12:18 pm

    Here’s a nice 6.5 minute video in which Goldbug Mike Malony explains why we are paying for the privilige of having currency and the whole system is based on a scam

  5. ghostwhowalksnz 5
    26 October 2011 at 12:25 pm

    Since when did the prefu become a ‘futurefu’

    I thought it was a checking of the books just before the election not an exercise in crystal ball gazing

    Seems to be just a way to say ‘look over there’

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