Ideas@TheCentre – The CIS newsletter (Sydney), 19 August 2011

Reading news from both sides of the North Atlantic, it looks as if America and Europe have agreed to commit joint economic suicide.

In the United States, fiscal consolidation is too timid in its scope; in Europe, debt levels are too high to be brought under control even by harsh austerity programs. Both continents are addicted to money printing in the form of soaking up government bonds. Both parts of the old West are now entering what looks like another recession. And then there is the minor complication of the botched European monetary union – not that the US Federal Reserve was any more credible than the European Central Bank. Having said that, the ECB is certainly not the only bank in Europe with a dubious balance sheet.

Welcome to the next act of the Global Financial Crisis! If you thought 2008-10 was a rollercoaster, you ain’t seen nothing yet.

By attempting to ‘save the world,’ as former British PM Gordon Brown once let slip, the old West has dug itself into a hole. Rescuing banks, stimulating economies, and guaranteeing bankrupt states – North Atlantic governments have successfully turned an economic crisis into a systemic one.

At stake is not just the future of the global economy but the entire political and strategic world order. Everything we once took for granted is now questionable: the US dollar as a reserve currency, American military dominance, peaceful cooperation between former arch enemies in Europe, the role model of liberal democracy, and the (more or less) free market.

These are dangerous times because like a cancer, the crisis has spread from the financial sector to the economy and on to society, the state and international relations. Previous recessions were temporary and confined crises. The current crisis is neither.

In fact, it may not even be a crisis in the literal sense. By their etymological meaning, crises are decision points at which one can choose between different pathways. Currently, Western governments have very little to choose from. They are bankrupt, both economically and morally.

Australia has so far been shielded from these events because of previous fiscal prudence and ongoing demand for its mineral resources. But we can’t forever bank on past glories and luck. As the West’s crisis gathers momentum, Australia could be dragged down with it. This is why we have to make tough decisions while we still can. This means reinforcing our fiscal consolidation, reviewing our security strategy, and not burdening our economy with any new taxes in these difficult times.

If Europe and America are bent on committing suicide, there is nothing Australia can do to stop them. But we can decide not to join them.