PM Key thinks Europe will "muddle-through" crisis; "Utterly convinced" about Merkel's resolve; Feeling better about NZ's position

By Alex Tarrant

Prime Minister John Key thinks Europe will messily muddle through its sovereign debt crisis after being "utterly convinced" German Chancellor Angela Merkel has the resolve to keep the Euro-zone together.

Key said his trip to Europe last week, which included meetings with Merkel, British Prime Minister David Cameron and Bank of England Governor Mervyn King, also left him feeling more upbeat about New Zealand's relative position in the global economy.

While he was slightly more confident than before that the Euro area would hold together, Key told media at his post-Cabinet press conference on Monday that the meetings also made him more aware of how big the challenge was facing Euro policy-makers.

Key's meeting with Merkel included a wide-ranging discussion about the problems faced.

“I came away from that meeting utterly convinced she is totally committed to the future of Europe,” he said.

“I think they’ll muddle through, yeah. It might be a messy muddle, but they’re going to do it.”

That was indicated by the fact the Spanish banking crisis last weekend had been met with a €100 billion package. Meanwhile, if Greek voters voted in a pro-austerity government this weekend, Key said he would be amazed if it didn’t continue to get support. Likewise in Portugal, which is also undertaking economic reforms in return for a bailout package.

“There is a huge amount invested in the success of Europe. It doesn’t mean it can’t fail, but if it does fail, it won’t be without the best of intentions and a massive amount of support," Key said.

People generally were worried about the crisis spreading to other countries like Italy, “but maybe that answers the question of why a bailout package for Spain was provided before the [Greek] elections on June 17."

Key’s view of the track New Zealand needed to take to deal with the implications of the Eurozone crisis had not changed.

“What I would say is, possibly I’ve got slightly more confidence that the Euro area will hold together, but I’m more cognisant of how big the challenges are," Key said.

NZ in good shape, relatively

Looking through the basic economic ingredients New Zealand had, relatively speaking, they were pretty good, Key said.

“Our tax system is broad-base, low rate, with high degrees of integrity – most people pay their taxes; Our employment markets are flexible - more flexible even than Australia’s; Our level of government – got a unicameral system, relatively low levels of massive bureaucracy in our state government; Our education system, for all of the challenges that we have, still ranks with the best in the world; We’re building infrastructure - rolling out ultra-fast broadband.

“We’ve got a lot of great things going for us. We also happen to have very creative people and a product that the world wants to buy,” he said.

Organisations like the IMF and OECD had supported the National government's track to surplus. And, despite rising debt levels, the government had been in a position where it had been able to use its balance sheet to help New Zealanders through the recession by maintaining entitlements.

The economy had also turned and was improving.

“Our unemployment numbers are, relatively speaking, ... pretty good. Growth overall looks pretty good over the next three years. I think New Zealand’s in great shape," Key said.

“But it’s a very uncertain world.”