Interview with Ed Conway, Economics Editor, Sky News International

Subjects: Eurozone crisis; UK emigration to Australia; Syria; Iran.

Transcript, E&OE, proof only

World Economic Forum, Davos, Switzerland

28 January 2012

ED CONWAY: Kevin Rudd, thank you very much for joining us.

It is almost the end of the World Economic Forum meeting here in Davos. Just tell us your sense of the mood here in Davos.

MR RUDD: In terms of Europe I think the mood is one of what I'd describe as small 'o' optimism.

I think when people gathered here at the beginning of the week it was capital 'p' pessimism. But I think as people have come to grips with the dimensions of the European policy response on firewalls, on fiscal compacts, on domestic economic reform programs, and the excellent work done so far by the ECB, people can track a way through this - of course depending on political will.

I think the challenge here though lies still in the missing element in the global economic equation, and that is: where does the next increment of global economic growth and employment come from? You've got monetary policy which is expansionary around the world; interest rates lower than they've been for decades in most countries in the world; fiscal policy contraction as people repair their national balance sheets; so the question is, under those circumstances, where do you generate more growth?

We can either just do it in our part of the world, Asia, which is going to be growing at six per cent plus, but here in Europe, where you're bordering on recession, it's a problem. I think trade liberalisation stares everybody in the face as the obvious next step to go -subject to political will - because it doesn't cost your budgets; it's not relevant to where monetary policy may go; and a huge psychological shot in the arm in global demand.

CONWAY: Australia has been one of the most resilient economies during the crisis. Are you seeing the impact now of the Eurozone crisis on your economy and your country?

MR RUDD: Well we do see a slackening of demand somewhat across Asia.

Mind you, in the performance across the year I still think we'll see a strong outcome from China which does underpin so much of our region's economic growth.

But let's be very frank about it, if Europe is going bad, it affects global demand and therefore markets in our part of the world.

Secondly, Europe is a huge source of global capital investment and if banks are contracting finance to repair their balance sheets here in Europe, it's less investment out there in, frankly, the growth zone of the twenty-first century.

Then there's that great subjective thing called confidence - that thing which causes people to either hold back or go forward.

In Australia, we are holding up well. Unemployment is just over five per cent. We're probably the only OECD economy not to go into recession - certainly the only one of the Europeans.

We look towards growing at somewhere around trend this particular year and on top of that, our debt figures are low, our deficit figures are low and we are AAA rated. So we're in a fairly strong position in what is still a volatile world.

CONWAY: When you say you're AAA rated - obviously the number of AAA rated countries has come down just in the last few weeks in fact, in France and Austria's case. Do you foresee a world where those numbers come down to a few, if not one or two? Do you think there could be a world in which Australia remains the only AAA rated country in the world?

MR RUDD: We don't really see it in those terms. We seek to attend to our own fiscal knitting, our own financial knitting to make sure that we have, for example, well-regulated domestic financial institutions. None of our banks or financial institutions went to the wall during the beginning of the financial crisis. They were well managed; their balance sheet are in good order; they are now among the top 25 banks globally in terms of market capitalisation. So the private financial sector in Australia is strong - but public finance is equally. Our job is simply to maintain that while at the same time investing in the future drivers of growth in our own country as well, which is doing ok. We're a USD 1.4 trillion economy - number 12 in the world, number four in Asia, always looking to do better.

CONWAY: But with that strength, are you prepared to provide more money to the International Monetary Fund? Of course, Christine Lagarde is here asking for more resources for the Fund.

MR RUDD: Yes. The reason we say yes is because we believe it is part of our global responsibility. We have made that clear in statements in recent weeks.

I think all countries need to rise to that challenge. The thing about an effective global firewall, as it is with an effective European firewall, is that if it is effective, it is never called upon. It's actually getting to that threshold where there is sufficient confidence in the ultimate underpinnings of the private financial systems, and therefore the sovereign debt arrangements within countries, that the firewalls are precisely that - they prevent the fire.

CONWAY: But do you think the UK should be providing more? You said everyone needs to provide more. The UK is still prevaricating about whether to provide extra resources.

MR RUDD: Well national governments will make their own decisions.

But you know something? We are in a rolling financial crisis. It began as a problem with subprime in the United States and the domestic mortgage market there, back in '07/'08 - about the time I was elected Prime Minister - always a timing problem when you come to office. And I've been living with this thing in one capacity or another ever since.

But the financial crisis then was located in the United States. We then saw Lehmans collapse and the other failures in the United States.

Now, the centre of gravity of the crisis is here in Europe, and off the back of sovereign debt arising from sovereigns taking onto their shoulders the problems of the private banking system through guarantees et cetera. But where will the next centre of the crisis be? Well, we hope there won't be another centre of the crisis. But that goes back to the core question - do we have our global financial institutions sufficiently policy-ready and sufficiently financially empowered to deal with shakes to the system when they arise.

That's why I think we've all got a collective self-interest. It's not solidarity, as the Europeans often say, it's collective self-interest.

CONWAY: In that case, is it damaging for countries to say that they won't provide cash unless they are very specific.

MR RUDD: Well, again, I won't tell the government of Her Britannic Majesty's Realm how to run the Exchequer and what they do with the IMF. They will sort that out with Christine Lagarde themselves.

But I think for all governments it's important that we defend and sustain and strengthen the global institutions, and the IMF's one of them. It's part of the Bretton Woods arrangements. It's designed for this sort of thing. We've got to make it work.

CONWAY: There's been a sharp upturn in immigration from the UK to Australia over the past couple of years. Do you have any sense as to what's attracting people or conversely driving them from the UK?

MR RUDD: That's probably our performance in the cricket against India. I'm not sure - weather, cricket, something to drink.

Look, I think the figures are a little bit overdone. I've looked at them recently. They're up a bit but they're not up hugely.

And Australia has always had a system of orderly migration for countries around the world, including those of Europe. We also have a great system of working holiday visas for young people of most countries in Europe. Then, on top of that, we've got stacks of students studying in Australia. At any one time at any one year, if you put together regular migration; our refugee intake; short term working visas; as well as student visas and working holidays visas; you have about half a million foreigners in our country of 23 million every year, doing one thing or another, but they are very welcome.

CONWAY: Onto foreign policy and Syria has been kind of a key point of discussion here. Are you concerned about the recent developments including the shooting of the Secretary-General of the Red Crescent in Syria.

MR RUDD: Yes, I discussed this in detail today with the President of the International Council of the Red Cross, the partner organisation for the Red Crescent, Jakob Kellenberger, who of course is based here in Switzerland.

We do a lot of work with the Red Cross. In fact we are one of their funding governments for their work in Syria. As you know, humanitarian agencies have very limited access to Syria at present. The Red Cross, through their partner organisation the Red Crescent, has been doing excellent work, particularly in looking after those who have been imprisoned and incarcerated.

This is a shocking development, the assassination of the Secretary General of the Syrian Red Crescent. It's a demonstration of the fact that violence in the country has just gotten out of control, which brings us back to the necessary actions which are foreshadowed by the UN Security Council in its current draft resolution, which we fully support.

CONWAY: And another country which has been much in discussion here is Iran. What are your concerns about the heightened tensions around Iran at the moment?

MR RUDD: Iran runs the grave risk of believing it can just get away in the international community despite the continuation of its nuclear weapons program.

And what the international community is saying is that this is not business as usual.

If you're going to develop nuclear weapons in defiance of the International Atomic Energy Agency and in defiance of the relevant UN Security Council resolutions, then guess what? The international community is going to react.

We've done that through a range of sanctions in the past, including Australia, but when you start going to the core of Iranian economic interests is when you start imposing a boycott on oil. We think it's the right thing to do.

When the European Union announced this last week, I was in London and I stood up with Foreign Secretary Hague and announced that we in Australia would implement parallel arrangements. We think it's the right thing to do to translate a message to the entire Iranian political elite, and the people of that country, that this has a cost, and they need to change their approach.

CONWAY: But it has a cost for us as well - potentially economic and geopolitical. You're not concerned about that?

MR RUDD: Well you know something? The business of foreign policy is usually not one of absolutely clean choices. It's not - this, and therefore, can I do that as well. It's actually arriving at an appropriate judgment which says we've got to send a clear message to the Iranians on this deep national security question for so many of us, while at the same time recognising that it will cost a number of our economies in one way or another.

But I believe, given the implementation timetable, which is some six months, there is an opportunity for various importing countries to adjust their sources of supply. Remember we've got Libya re-emerging as an export country. Iraq is now fully back on-stream. It's not as big an oil-constrained world as it used to be…

CONWAY: But Iran is a big producer.

MR RUDD: They are a huge producer.

Our own exports to Iran have gone down to about USD 1 billion per year in recent years down to about 300 million, so the sanctions regime we already have is costing Australian producers, as they are producers around the world.

But the core interests here is so fundamental - allowing a state to covertly develop nuclear weapons which have a devastating effect, particularly if used in an exercise of nuclear blackmail - that we, the international community, have simply said 'No. You need to know there's a cost to this and it will flow directly through to Iranian living standards'.

CONWAY: Okay. Final question when you come to meetings like this, do you find increasingly people looking at the Australian economy - the feeling of well-being in Australia - do you find that people's attitudes towards have changed in the last few years?

MR RUDD: That's for others to judge. We're just a sunny bunch of optimistic people.

But I think we work hard at what we do and I think we've crafted a strong economy over some many years now.

It's an entrepreneurial country.

We get out and try and make a difference.

We're a middle power with global interests.

We try to make a difference in the world through our foreign policy, in Asia and globally.

But our interest is to partner, frankly, with like-minded and fellow democracies around the world and other countries to make a difference in the world; keep the economies open for the world, because that's the pathway to future economic growth; and also promote the sort of open societies which we enjoy and need to sustain.

CONWAY: Thank you Kevin Rudd, thank you very much indeed.

MR RUDD: Thanks for having me on the program.

ENDS

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