THE current mantra of the Australian government is that Europe has to fix its problems. Treasury secretary Martin Parkinson wants "clear and credible" commitments. Julia Gillard promised to deliver a tough message to leaders at the G20 summit in Cannes. Wayne Swan accused European leaders of "mucking around" and declared "the time for half measures is over".
The Australian government never gets into detail about how Europe should fix its problems. How much should German taxpayers pay to underwrite the sovereign debts of Italy, Greece and a whole lot of other countries that spent money they didn't have? If those bonds are salvaged, how do those countries get competitive without a massive currency devaluation - which can't occur in a common currency? What can be done to fix the underlying economies of these countries? The Australian government might think it is none of its business to tell the Europeans how to suck sovereign bonds, but if that were the case it would not be demanding action as often as it does in domestic speeches and press conferences.
Once upon a time we could have shared our experience at managing and eliminating public debt. We could have shared our experience on how to halt a ratings downgrade and restore a sovereign credit rating to triple-A. We could have shared our experience in breaking down restrictive work practices and exposing ossified industries to the new winds of competition.
Advertisement: Story continues below
Usually economic problems build up over a long time. And the problems of Europe - excessive debt and low productivity - have been building for decades. There is even a word for it - "eurosclerosis". Back in the 1990s, the OECD recommended Europe look at some of the Australian reforms as a way of dealing with its problems. But it didn't, or at least most of it didn't. The consequences of long neglect are now coming home to roost.
Since then a funny thing happened in Australia. After Lehman Brothers collapsed in 2008, prime minister Kevin Rudd decided it showed how the liberal economic model - the model adopted in Australia - had failed. What the world needed, he said, was to be rescued by social democracy which required more state intervention and higher spending - spending that would require higher borrowing. There was a model for this kind of thing - it was Europe. Europe is the home of social democracy. Rudd thought that smaller government had been shown up as the poor competitor, and bigger government with its bigger borrowing program was the answer.
It's strange to think that the Australian government wanted to ape Europe just as it was sliding towards this crisis. No wonder it feels a little queasy about giving recommendations on how to turn things around.
If Australia cannot share any useful recent experience with Europe, where should the Europeans start looking? They are already looking to the countries that are cashed up with money that could be usefully ploughed into rescue funds for their banking system. And the biggest of them all is China. China is not just balancing its budget, it is accumulating money from economic growth into government-owned sovereign wealth funds. One of these funds is the China Investment Corporation (CIC) thought to have about $400 billion - five times the size of Australia's sovereign wealth fund.
CIC chairman Jin Liqun was asked recently if he would lend money into the European bailout. What he said was extraordinary: "If you look at the troubles which happened in European countries, this is purely because of the accumulated troubles of the worn out welfare society. I think the labour laws are outdated. The labour laws induce sloth, indolence, rather than hard-working. The incentive system is totally out of whack."
Mr Jin is extremely well regarded as an economist. He is chairman of the International Forum of Sovereign Wealth Funds. And he represents a communist government. When you have communists complaining about socialism in Europe it is worth paying attention.
Is he wrong? I don't think so. Neither does the OECD. The Australian government will not give us the benefit of its views because its "Fair Work" labour laws are not focused on incentives any more than the European model.
Once upon a time the Chinese government would have had nothing to teach us about economic growth. But its track record is not looking so bad these days - not as bad as Europe, that's for sure.
Borrowers can't be choosers. If Europe wants a loan from China it will get an earful of advice with it.
Peter Costello was federal treasurer from 1996 to 2007.
](./images/smilies/eusa_wall.gif "Brick wall")
