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English welcomes NZ$ fall, Key eyes effect of EU downturn on China following anti-austerity Greek, French and German election results

English welcomes NZ$ fall, Key eyes effect of EU downturn on China following anti-austerity Greek, French and German election results

By Alex Tarrant

The government is welcoming the fall in the New Zealand dollar following elections across Europe, but is closely watching the actions of new anti-austerity policy makers in the European Union and how they will affect New Zealand and its trading partners.

French voters elected their first Socialist President in 17 years yesterday when Francois Hollande beat Nicolas Sarkozy on an anti-austerity ticket and the outcome of the Greek election remains unclear.

Prime Minister John Key told media in Parliament Buildings on Tuesday that what happened in Europe was important to New Zealand. While New Zealand’s economic relationships with individual countries themselves were not that large, the overall relationship with Europe was significant.

"Europe’s impact on the rest of the world is quite significant. We’ve seen China slowing down, because Europe’s been slowing down. So you can’t say there’s no impact [on New Zealand]," Key said.

“I think it very much tells you we’re doing the right thing, which is, if we take some steps now, explain why we’re taking those steps, and we’re cautious and careful about getting back to surplus, we save ourselves an enormous amount of pain later," he said.

''If you live beyond your means you eventually run into a brick wall'

“In the end, if you look at a country like Greece, they can vote against austerity, but if they don’t get their books back in order, and if they don’t pay the piper, they will be kicked out of Europe. And once that happens, if it does, that has very big implications for Greek companies about whether they can raise capital, and whether there is an increase in unemployment in Greece."

“There’s no simple way through this. If you live beyond your means, you eventually run into a brick wall," Key said.

“I think from New Zealand’s point of view, our government accounts are in far better shape than any of those countries. What we are trying to do is make sure we don’t load up the next generation of New Zealanders with debts that substantially reduce their choices," he said.

Finance Minister Bill English said if the New Zealand dollar continued to fall on the events, that would be good for the economy as long as Europe continued to find ways of getting through the problems it was in. The governments just elected would still have to deal with the same issues as those just thrown out.

Over the last few days the New Zealand dollar has fallen below 80 US cents, hitting its lowest point since January, on concerns about the situation in Europe and the wider global economy.

“There’s quite a bit of rhetoric in Europe about doing things completely differently, but in the end they’ve got to deal with the real situation they have of huge debts and economies that aren’t quite as competitive as they probably need to be," English said.

Hollande v Merkel

Hollande has promised to renegotiate the European Union's two-month-old fiscal pact to allow governments to introduce more 'pro-growth' policies, like more government spending, in a move away from an austerity agenda pushed by German Chancellor Angela Merkel and Sarkozy. Following Hollande's election, Merkel told media her stance was that the fiscal pact was not negotiable.

Merkel's Christian Democrat and Free Democrat coalition also suffered defeat in Germany yesterday, when it lost a state-election in the northern part of the country. It faces a larger regional election next week.

And the two Greek political parties who have alternated in power since 1974, and who both support the IMF/EU austerity policies placed on Greece for receipt of bailout funds, also suffered yesterday. The incumbent socialist Pasok Party, and the conservative New Democracy Party, came up with less than a third of the Greek vote, meaning they could not form a coalition together.

Fringe left and right wing parties received, between them, more than two-thirds of the vote in Greece. However, the country appears to be headed for another poll. New Democracy, which at 19% got the biggest share of the vote, was unable to form a coalition government following the election. The second-placed left wing coalition party, Syriza (17%), is now in coalition negotiations with other parties.

If Syriza is unsuccessful then Pasok (13%) will be allowed to try and form a coalition. If not, Greeks will go back to the polls.

Those three sets of elections followed the resignation of the Dutch Cabinet last month, after it failed to agree on an austerity package to bring its budget deficit back within EU guidelines, to three percent of GDP.

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Ok so Greece owes a large sum to foreign creditors. Why should this be characterized by 20% unemployment and 50% youth unemployment? Shouldn't there be 0% unemployment as everyone is put to work to pay off their debt? Did something inexplicable happen that caused Greek worker's marginal products to fall so low that they can't do anything productive?

This isn't about "living beyond your means", it's the failed economic theory behind the euro. 

I got to the fifth paragraph and couldn't be bothered to read further than that - probably four paragraphs more than I should have endured.