Interview with Sandy MacIntyre, Associated Press

Subjects: Eurozone crisis; Iran; Syria.

Transcript, E&OE, proof only

World Economic Forum, Davos, Switzerland

29 January 2012

SANDY MACINTYRE: Having been in Davos now this week, do you leave here more optimistic or less optimistic about the global financial crisis, and if so why?

KEVIN RUDD: Well when the week began I think the overwhelming mood here at the World Economic Forum was capital 'p' pessimism about the unfolding financial and economic crisis in Europe. At the end of a week's deliberations I think that has probably turned to a small 'p' pessimism and in certain parts maybe a small 'o' optimism.

The policy way through this crisis I think is now relatively clear. The question now lies with politics. On the policy, we all know, it's the quantum and the mechanism for an effective firewall. On the policy we know it needs to be matched by an effective fiscal compact, which European leaders will deliberate on in the next 24 hours. Longer term it is what happens to the domestic reform program in various European economies.

But here's the missing element, and why many remain concerned. It's in the midst of all this – where is the next driver for economic growth and employment coming from. That's what worries us.

Right now, this year, we begin to have the burden of economic growth being borne by, frankly, the emerging economies of the Asia Pacific, zero growth in Europe and thin growth at best in the United States. Now there's a limit to how much the Asia Pacific can bear the rest of the global economy. Therefore, a growth strategy for Europe is critical.

One of the things that I've strongly argued is that if you have got monetary policy very lax – in terms of it being virtually zero interest rates in many of the economies around the world – fiscal policy tightening, one thing that stares you straight in the face is summoning the political capacity necessary to conclude global trade liberalisation this year, to find that extra increment of growth.

SANDY MACINTYRE: If you're standing with the man on the street in Europe, as distinct from the delegates here, and you had to put exactly that into layman's terms as to what their government should do, how would you sum it up to the European man in the street?

KEVIN RUDD: Well, I think the key thing for every member of the European family, most of whom have families they have to put bread on the table for, it's this: the governments of Europe are tightening their belts because they've had to bail out a whole bunch of banks and stimulate the economy because all the banks got it wrong earlier on. Now, as a result of that, it's going to be rough for the next 12 months ahead, but we need to find a way to lift the economy so that your job's ok. And that's what the governments of Europe are now talking about.

SANDY MACINTYRE: So Europe seems to be almost schizophrenic about this. You've got one half pushing towards really grim austerity, and you've got others saying 'borrow your way out of trouble.' What's the magic pill from your standpoint?

KEVIN RUDD: The danger in Europe is you have two sets of people talking past each other. The truth is, if you just stand back from it, as we – as a successful Western economy in Asia – try to do, both propositions are inherently correct. The tightening of fiscal budgets is necessary over time for a range of accumulated historical reasons. We know that. At the same time you can't just turn a blind eye to what is necessary on the growth agenda.

So where does the real debate lie? If fiscal austerity or what I would describe as structured fiscal discipline over time, is necessary – and we argue that it is as well – together with firewall measures to properly protect the integrity of the overall financial system – if we're operating in that environment, where is the non-fiscal growth increment for the future. I've just suggested one – it's trade. If you were to conclude Doha in the next five months, in the G20 Leaders' meeting in Mexico, the shot in the arm to global economic confidence to opening up the markets of the world with new added burst of growth would be huge. And the real impact on the global economy would be significant as well. So that's one. There are others as well including lifting demand of the surplus economies such as Germany in Europe and China in Asia – that is very much however dependent on national decisions.

SANDY MACINTYRE: Let me just ask you to condense all of that. I'm going to ask it in a different way. If I asked you to write the prescription for Europe for next 12 months, and you had to literally get it onto the size of a prescription, what would you say?

KEVIN RUDD: The first point would be this: don't talk yourselves into an early economic grave, because there is a psychology afoot at present that doesn't bear any relationship to the fundamentals of Europe's economic strength.

Point two: belt tightening, when it comes to bringing your national budgets back into surplus over time. Not overnight but over time.

Point three: for those economies in Europe who have not opened themselves up to domestic competition – that needs to happen straight away because you will unleash a whole new burst of growth by doing that of itself. And Europe is still domestically protected in a number of ways.

And four – sign up for the conclusion of the Doha Development Round. It lifts the global economy. Do those four things, and I think we start to head in the right direction.

SANDY MACINTYRE: Turning away from Davos but to a matter that is not only economic but political. Iran – fresh sabre rattling – today we expect on the closure or otherwise of the Strait of Hormuz. The possibility that oil could then rise to USD130 to USD150 per barrel. Where does Australia on the whole question of Iran and their nuclear ambitions.

KEVIN RUDD: Well when last Monday the European Union met in Brussels and decided on a new set of significant sanctions against the Iranians including the imposition of oil sanctions from the middle of the year, the Australian government supported those measures. And the reason we did so is because Iran's behaviour in its continued development of nuclear weapons is unacceptable in the international community.

Let's just think for a moment what happens if Iran succeeded. The capacity for the Iranian regime to conduct exercises of nuclear blackmail within the region, and elsewhere in the world, given the politics of Iran and the nature of its leadership is a significant factor. Then there are the possible retaliatory measures in terms of surrounding Arab states from the Sunni world who don't trust the Iranians as well. And there's enough in the public domain about discussions on the part of various Arab states about what they would do to develop counter nuclear capabilities to deal with the Iranian threat in order to deter it.

So this is not just what of those things that happen in international relations – it's big, it's fundamental. That's why countries have acted the way in which they have. Certainly, there are economic consequences which flow from the actions and you've just alluded to them, in terms of the impact on the price of oil. Over time however, we have also greater capacity coming on stream from Libya, and greater capacity of course and has been the case in the past now because Iraq is fully exporting.

So there'll be some bumps on the economic front, and I accept that, but I think it's important that people look at both realities at once, the security reality of a nuclear-armed Iran against the economic adjustment which will occur through any significant spike in the price of oil.

SANDY MACINTYRE: In the wider Middle East, the question of Syria – any message that you would send to President Assad?

KEVIN RUDD: I think it's time for President Assad to negotiate his exit. I really do. I think the writing is on the wall for the regime. I think the hardheads in Damascus know that as well. If you look at the magnitude of deaths – the UN reports more than five thousand since disturbances began. On top of that, the fact that you now have significant defections in the army. And the isolation of Syria on the part of the rest of the Arab world, effectively, practically all of the Arab world – look at the recent decisions of the Arab League.

The writing is on the wall – it's time to go. And the virtue of negotiating an exit now, is that there is an ability to avoid a complete conflagration.

SANDY MACINTYRE: I think the difficulty that the Arab League is now facing, clearly, is that its monitoring mission has not only been ineffective, but to an extent been humbled. Diplomatically, what can countries like your and others do to turn something that is a thorny problem into something that's a rapid solution?

KEVIN RUDD: Well, let's look carefully at the evolution of international responses to Libya. The Australian government, from memory, was the first government in the world to call for a UN Security Council no-fly zone over Libya. We then backed that with aggressive diplomacy in the Middle East, worked with our friends in the Arab League with a simple message: that the Arab League does not have a consensus position on this, let me tell you, the UN Security Council won't do anything about it.

So we've been active in our own diplomacy, we are globally active in dealing with many challenges across the world and the subsequent evolution of events in Libya we are now familiar with. With Syria, the Australian government has been the first to call for Assad to be referred to the International Criminal Court, the first I believe to call for Assad, or one of the first to call for Assad to go. What has happened since then is we see this galvanising activity again across the Arab League, and sure, the mission into Syria itself by the League had mixed results. It's a difficult environment.

But the impact of the Syrian response to the findings of the League I believe has a capacity to further consolidate the League's view over what now should be done with Syria. That is the next step to be concluded because that leads inevitably to a Security Council resolution calling for the head of the regime to go and for transitional political arrangements to be put in place. International politics is never simple, it's highly complex. What did Bismarck once say about politics? It's like making sausages, never a process to observe too closely. It's never neat, it's never tidy, but if I was to say where we are now with Arab League in harness, putting pressure on Damascus, contrast that with 6 months ago, some considerable progress has been made.

But the bottom line is every day of delay will see more and more innocent Syrian civilians killed across that country. And the people of Syria don't deserve that. We have many Syrian-Australians who have come to make their home in our part of the world. I met the Syrian National Council only last week in Paris. There are ways through this for a better, integrated, pluralistic Syrian state which is not run by, frankly, the use of terror tactics by the current regime.

SANDY MACINTYRE: Thanks very much.

ENDS

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