Delusion reigns supreme in the NZ media

While the Australian media is getting more realistic, as witnessed by reports in the last few days, the New Zealand media still engages in delusional journalism, and the following.

No one is going to tell me the NZ economy is more robust than that of Australia.

I suspect the answer is that Kiwis are more parochial and just plain ignorant about the world around them.

Why Greece matters to NZ

This month's National Bank business outlook showed business confidence has fallen - the first drop in 7 months.

Stuff,

1 June, 2012

A net 27 per cent of respondents, down from 35.8 per cent the previous month, expected business conditions to improve over the coming year and as National Bank economist Cameron Bagrie said it's an important first read on how businesses are faring in the face of growing uncertainty over prospects for the global economy, and particularly the situation in Europe.

Bagrie's view is that sensible heads around the globe are called for as the recovery from the global financial crisis was always going to be a long drawn-out affair.

Sitting in your living room here in New Zealand you may think the size of Greek debt and what they do about is of scant concern compared to paying your own bills.

But it does matter, and employers here know it. That's why they're being so cautious on hiring new staff and have pulled back on investment.

Here's a quick layman's version of the Greek drama, which is potentially the worst of several problem European countries.

The Greeks were living way beyond their means on borrowed money and the day of reckoning came with the global financial crisis.

Now the country is being kept afloat by huge international rescue loans given on the basis no-one wanted the country to go down the gurgler because of the flow-on effect for the rest of the European Union.

It was the biggest sovereign-debt restructuring ever and the original lenders took a big hair cut on what they were owed.

It was seen as an end to the crisis - prematurely it turned out as it hinged on Greece introducing severe spending cutbacks which unsurprisingly the Greeks don't like. Reality checks are never painless.

One in five workers is now jobless and the country is in the fifth year of deep recession.

Inevitably people looked for someone to blame. At last month's national elections the two political parties that agreed to the bailouts - conservative New Democracy and socialist PASOK - felt the wrath of angry voters. No-one was able to form a coalition government so they're giving it a second go on June 17.

Greece's creditors have warned that whoever winds up running the country will see the rescue loans stop if the country doesn't slash costs as promised.

Without that money, Greece would be forced to quit the European Union and revert from the euro back to a worthless drachma.

If that happened it could be the beginning of the end for the eurozone and raise the cost of borrowing again worldwide.

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Those opposed to Europe having a single currency in the first place are now smugly saying 'I told you so' - another thing no-one likes to hear.

Global markets and our own have been reacting in a topsy-turvy fashion to the likely outcome.

The Greek stockmarket rebound strongly at the start of the week from a 22-year low following four polls that showed New Democracy may get enough votes the second time around to form a coalition.

But by yesterday, shares on several markets had fallen sharply again following a new survey that indicated Greece's radical left Syriza party, which opposes the bailout commitments, had regained the lead.

Whatever the outcome, Europe's problems will take a long time to fix.

While more uncertainty is the only certainty right now, Kiwi businesses are feeling the overhang because of our weak domestic economy and the delayed fillip from the Christchurch rebuild.

Treasury's Budget forecasts include the downside of Europe degrading further, which it said would have broadly the same impact as an Asian slowdown. It didn't, however, consider the potential impact of both.

Only about 10 per cent of our exports now go to Europe but the sting in the tail is the fact that our two largest trading partners, Australia and China, are reliant on European exports and have suffered a major slow down in demand that is impacting their economies. What hurts them, hurts us.

Our own exports are down 17 per cent year on year, mainly due to lower commodity prices, but volumes have also flattened off. For an export-led economy that's a worry.

As NZIER economist Shamubeel Eaqub said, having a lower exchange rate as a result of the turmoil doesn't matter if people don't want to buy your stuff.