Drachma Dramazone

Drachma Dramazone is not Australia’s responsibility

After spending nearly a year sitting on its hands and then acting like cheerleaders after Transport Workers Union boss and ALP president candidate Tony Sheldon attempted to “slow bake” Qantas over what he claims are its plans to “Asianise”, the Gillard Government redefined “chutzpah” when it accused the Opposition of “financial xenophobia” after it refused to support the Government’s pledge to underwrite an IMF-Eurozone bailout of Greece.

In taking Opposition Leader Tony Abbott to task, The Australian’s David Uren warned: “The clear risk is that Australia, with a total public and private foreign debt of about $1 trillion, might itself need to tap the IMF’s funds one day.” At the rate the Gillard Government is going, that may be sooner than anyone thinks.

But what of the Coalition’s concern about backing the IMF into the drachma drama that is currently consuming the Eurozone?

Leaving aside the charade that the additional funding pledge is not for a Greek bailout, is it really the role of the IMF – supported by countries like Australia – to prop up wealthy but profligate social spending governments embedded in the heart of the European project?

The Eurozone was supposed to force fiscal discipline among its members. It hasn’t.

Former British Prime Minister Margaret Thatcher recognised at the outset that a common European currency among so many disparate economic cultures would require an intolerably centralised European government to impose fiscal discipline – something she would never sign up for. “There would have to be enormous transfers of money from one country to another,” she said to keep profligate social spending countries afloat and the Euro supported.

For speaking such common sense about European empire building, Thatcher was ousted by a Europhile-led revolt of her own party. But Britain has sensibly stayed out of the common currency.

Until this year, the vast majority of European governments were against IMF intervention in the Greek financial crisis – if only because it signalled the failure of Maastricht. Britain will not contribute and the recently held G-20 meeting showed there is little consensus for any concerted action internationally — at least not until Greece demonstrates that it is prepared to help itself.

Julia Gillard is not only out of her depth but out of step.

The IMF does not currently have the capacity to deal with European ‘incontinentals’ and the many other debacles on its plate, at least not without passing the hat around.

In the past, the IMF has played a vital role in providing stability through economic shocks including post-WWII reconstruction, the end of Bretton Woods fixed exchange rates, the 1970s oil sheikh shakedown and the fall of communism and liberation of Eastern Europe. The organisation has lately been playing an indispensible role shepherding developing countries economies. All good. 

There was a report last week that there are more Porsche Cayennes registered in Greece than there are taxpayers with declared incomes greater than 50,000 Euros. Whether or not that is an urban myth, Greece is not situated in 1947 Europe and Australian taxpayers are not mugs nor should Gillard mistake them for Western Union.

The IMF can and usually does impose fiscal and monetary reforms before throwing a lifesaver. But if it is again going to play a significant role in European financial stability, then the Eurozone’s value as more than a tourist convenience is a dubious proposition.

If the Eurozone, which has a single currency, a central bank, a phalanx of Frankfurt Eurobankers, directive-wielding Brussels bureaucrats, intergovernmental councils, committees and commissioners, all within the largest and wealthiest single advanced trading economy in the world, cannot impose fiscal discipline on its member governments, then clearly it has failed.

And it is right for the opposition to question the sense in the Gillard Government providing further funding guarantees to the IMF only to be used to shore up the systemic failures of the single European currency, profligate spending and entrenched and unsustainable social entitlements from the Atlantic to the Aegean.

Australia is only being asked to tip in another $5b or so in backing. You can’t build many school halls or install much pink batting for that. But governments being asked to pony-up for an IMF expansion fund – aka save-Europe-from-its-spendthrift-self fund – should consider again Thatcher’s prescient warnings.

There is also not a little indecent irony in a debt-addicted Labor government, propelled there by panicked, wasteful spending and ideological predisposition – i.e. the same propensities that landed Greece in the proverbial – itself attempting to strike the pose of fiscal rectitude and beneficence against European and Hellenic fiscal dysfunction.

Gillard doesn’t mind being compared to Thatcher. But the Iron Lady would have said, ‘Sorry, gave at the office already’, when the IMF rattled the tin cup for ‘poor’ Europe on her doorstep.

Alan R.M. Jones was an adviser in the government of John Howard.