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Sentiment shifts against a currency union with Australia as the consequences of what is happening to Greece sink in. Bernard Hickey is relieved. Your view?

Sentiment shifts against a currency union with Australia as the consequences of what is happening to Greece sink in. Bernard Hickey is relieved. Your view?

By Bernard Hickey

There was a time around 5 years ago when many of New Zealand's policy grown-ups believed an Australasian currency union was inevitable.

It seemed the logical end point to the deepening integration of the New Zealand and Australian economies through Closer Economic Relations (CER). Even the nation's chief currency trading Prime Minister, John Key, was musing aloud that it might be a good idea.

No more.

An opinion poll released this week by the Frank Lowy Institute think tank in Australia showed voters on both sides of the Tasman are now against a single currency.

The poll in mid-April of 1,000 New Zealanders over 18 found 46% now opposed some form of ANZAC dollar, up from 42% in a similar poll 5 years ago and above the 43% who now support such a currency. A poll of 1,005 Australians over 18 found 54% now opposed a joint currency, up from 42% in 2007.

Many economists and central bankers were always luke warm on the idea, which has always seemed more politically than economically driven. Back in 2007 many pointed to the apparent success of the Euro-zone as a reason for such a currency union.

Again, no more.

This weekend's election in Greece is all about the catastrophic failure of a currency union to deal with differences in the structures of economies within that union.

The euro-zone's inherent flaws have been exposed by the Global Financial Crisis, having been hidden for years by a series of property bubbles and rampant lending by European bankers determined to leverage their way to glory (and some really big bonuses).

Now the tide has gone out, Europe's bankers and the euro-zone are exposed in all their economic nakedness.

Essentially, Germany was the prime beneficiary of the Euro-zone. The new currency was weaker than the Deutsche Mark would have been, making German exports more competitive in the eyes of Southern European buyers, who were flush with their relatively powerful euros. Germany generated big trade surpluses with its Southern European neighbors and lent those surpluses to its neighbours to buy yet more German exports.

It's no accident that Greece and Spain are now awash with heavily devalued Porsche Cayennes and BMW X5s while Germany is struggling to get Greeks and Spaniards to repay the debts racked up buying said SUVs made in Leipzig and Spartanburg.

Now the only solution is for Germany to write an enormous series of cheques to keep Southern Europe in the euro or take one almighty hit by forgiving the debt. The first option is politically untenable. The second would wipe out Germany's banks.

Many economists now believe the cleanest and most effective option would be for Germany itself to leave the euro and return to a much stronger Deutsche Mark.

Suffice to say, this is one almighty mess caused by the formation of a single currency zone without either common economic fundamentals or common fiscal policies.

An ANZAC currency union would be similarly flawed. For it to work Canberra would have to take over New Zealand's taxation and spending policies. New Zealand's soft commodity exporters would also have to suffer the pain of any divergence between soft (dairy products, meat, fish) and hard (iron ore, coal, gold, oil) commodity prices through the cycles.

If we had adopted the Australian dollar five years ago we may well be facing our own Greek crisis within the decade.

We dodged a bullet with that one.

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20 Comments

..... but Bernard , the Spanish banks have received a $ 100 billion bail out , overnight ...... surely that must appeal to all the good little socialists running NZ ( NZ Labour Party , and their lite division , National ) ...
 
The lesson is that you can screw up as badly as you want , under the protection of the collective umbrella , and someone else has to bail you out .....
 
.... given the strengths of the two economies , it will be NZ who is sucking on the Aussie teat ..... yipppppeeeeee , free Fosters & VB for everyone !

Yep, yet we persist with all the 'free market' rhetoric. There ain't much free with CB's running the show and dispensing money from thin air til the cows come home.
Not sure about who will be sucking on who's teat though. If Aussie banks went down their debt-to-GDP would be at 100%+ in a heartbeat.

....... Aussie banks , the " 4 pillars ", cannot go down ...... Bluescope Steel has sunk  , Qantas ka-plopped  Fairfax has crushed investors' money .... but the banks are special , 'twas enshrined by Paul Keating , many moons ago ..
 
Check out the dividend yields of the ANZ / CBA / NAB / & Westpac , they're paying out a cool 7 % ( or thereabouts ) .....
 
..... this would have to be one of the most risk-free high returns investments available .
 
London-to-a-brick the big 4 average a year-on-year profit increase of  15 to 20 % again this year  ( year end 30 June ) ..
 
..... why knock it , jump aboard for the ride !

I thought the lesson was that it is a god given right for banks to have their losses paid by taxpayers.  Nothing to do with socialism, more like gangsterism.

Nothing to do with socialism, more like gangsterism.
 
Not a truer word spoken. Rackateers, the lot of them, as are their democratically appointed. apparatchiks.

I don't really agree that it wouldn't have been a good idea, say 15 years ago, when our wages were more even, I think we would be a richer country. But if implemented today, it would be a disaster to our exporters. The problem with the eurozone is that you have a huge difference between the economies of these countries, and the wages they earn, as well as their politics and tax policies. NZ and Oz are far more similar, and we have similar tax policies and ideals. I think it would have benefited NZ far more than Oz anyway, and would possibly benefited more being a state of Oz. NZ shouldn't throw stones though, as we have huge borrowings and are spending more than we earn, which isn't sustainable. And we are again moving back into property investment, due to a lack of productive sectors to invest in. Really NZ is just riding the wave on this since 2007, but it is a bit like watching a slow car crash. Governments are putting 'pillows' in front of the car, in the hope that it will make some difference, but you can't stop the enevitable.

No New Zealander  who has lived in Australia for any length of time or paid any attention to their politics would want their politicians controlling our destiny unless we went the whole hog and joined their federation.
 
Currency union would mean the aussies controlled our interest rates and our exchange rate as well as defacto controlling our fiscal policy as Bernard says.The relationship is so unbalanced we would have no more say than Tasmania does. In exchange for that we would get ...... nothing really except simpler transactions between the two countries. Federation would at least mean Aussie tax payers could pay our Social welfare bill .
 
I bet NSW wishes it had its own currency and could set is own interest rates right now.

.... will we get the little 5 cent piece back , if we currency union with Australia ?
 
I hate the stupid new New Zealand coins . Go back to cute little ones , like the thruppence ! And good designs , like the tuatara .... and make the size difference wider , between the 20 cent & the 50 cent coin ....
 
.... at least our $ 2 coin is bigger than the $ 1 ; Aussie got that one hopelessly wrong .. ...
 
Actually , life ain't so bad when that's all you've got to gripe about , yup ..... not so bad at all .

 

Two sides of the same coin.

A joint venture it is. aussie and nz ingenuity tax concessions.

call it what you like...we both need to screw more taxes, any which way we can out of each other.

maybe we can reciprocate economy wise and tax wise.

A woman walks into an accountant's office and tells him she needs to
file her taxes.*
*The accountant says, "I'll need to ask you a few questions."
He gets her name, address, social security number, etc. and then asks,
"What's your occupation?" *
*"I'm a prostitute," she says. *
*The accountant is somewhat shocked and says, " Let's try to rephrase
that." *
*The woman says, "OK, I'm an Australian high-end call girl". *
*The accountant replies, "That still won't work. Try again." *
*They both think for a minute; then the woman says,
"I'm an elite New Zealand chicken farmer." *

*The accountant asks, "What does chicken farming have to do with being a
prostitute?" *
*"Well, I raised a thousand little peckers last year." *

*"New Zealand Chicken farmer it is..I suppose a pheasant plucker is
really out of the question."

Alternatively the accountant stated
"Same difference...you could have said you were a consultant for NZ
social welfare, but that will have to do, we have too many of those
breeding idiots on the books as it is"

As I noted back in Feb 2011. 
http://sustento.org.nz/anzac-back-on-the-parade-ground/
Key bit is the Peter Costello quote at the end. 

While I tend to agree with you Bernard....I think it was Australia that dodged the bullet there...!
On so many levels the wetback border crossings would become the target of National resentment as the cooler economic winter sets in.
 Maybe what they desired was a peso type curriency for the purpose of social welfare..? now they figure the NZD will become the next best thing. 
Caught you on John Tamahere's thingy there yesterday....uh ...? more on that later ...Bernard for P.M. indeed....is that good tele..?

It's time the South Island left the Kiwizone.  The south being the productive exporter and the north being the consumptive (sic) importer.

A new "New Munster"?
http://www.teara.govt.nz/en/1966/provinces/1
It's not such a crazy idea :-)
 

..... or Mayor Bob could just demonstrate to the homeless in CHCH how to insulate their tents with pink batts ....
 
Given the snow laying around , I'd say " igloos " are a go ....... free too . Unless you need a building permit and planning permission ........

The igloos would need building consent and planning permission - it's the leaky home saga..........
 
 

Anyone knows why New Zealand doesn't have gold reserves?  Is it because we have good quality dairy and merino wool?

There's a hunk of Conservation Land up in the NI, good gold reserves sitting in the ground. Best and safest place for it at the moment. Could always dig it up if a Gold Standard were ever re-implemented, which I'm told is highly unlikely.
 
Personally I wouldn't invest in physical gold for the reasons you have outlined above. There are far better ways to make money off the gold market.
 

Yep Raf.  Observation on the weekend was that Aucklanders drove pretty crap cars  -  really struggling.  And while it is true that the South has Porsche Cayennes and particularly awash with BMW X5s.  It's because they are affordable here, given the productivity.

Productivity higher in Chch - because you have to keep moving to keep warm..........

I've always perceived an ANZAC currency union to be inherently cargo-cultist. The Greek experience with the Euro currency has only reinforced that view.