cripplingly high unemployment<\/a> in Greece (25.7%), Spain (23.4%), Italy (12.6%) and France (10.6%) to name a few. To make matters worse, the single currency has proven to be a trap that sustains damaging trade imbalances within its boundary. Meanwhile Japan is close to recording two decades of economic stagnation, despite heroic fiscal measures. Debt has sky-rocketed in many developed nations as governments have borrowed massively to make ends meet in the face of collapsing revenues.<\/p>\nFor a while it looked as though emerging economies like China had escaped the ravages of the financial crisis, but that\u2019s not the case. Having substituted infrastructure investment for exports after the crisis, China is now struggling to generate domestic demand. As a result, consistent 10% per year growth is looking more like 6%.<\/p>\n
Policymakers have not been idle. Interest rates have been slashed to zero and quantitative easing has been injected billions of dollars into the monetary bases of Japan, the United States and the Eurozone. But much like pumping air into a tyre with a hole, they\u2019ve little to show for it in terms of economic growth\u2014though we cannot be sure what the counterfactual would have been.<\/p>\n
The influx of so much money into those economies has devalued their currencies and prevented others from being export competitive. One country\u2019s exercise of sovereign monetary policy looks like a volley fired in a currency war to another.<\/p>\n
If this were not enough, low interest rates are fuelling extraordinary asset price booms in many markets. These booms might turn out to be unstable bubbles that lead to further financial crises. Let\u2019s hope the watered-down tightening of financial market regulation prove sufficient to prevent a repeat of the cascading contagion of September 2008.<\/p>\n
For a country such as Australia with a narrow export base and, for the moment at least, a narrow tax base, the first line of defence against economic and financial uncertainty is low debt. If the worst happens, the government\u2019s capacity to borrow will be the shock absorber that will have to cushion the blow. The less debt we have entering the next crisis, the more ability we\u2019ll have to ride it out.<\/p>\n
Now you can see the problem. To guard against strategic uncertainty we need to invest in a capable defence force. To guard against economic instability, we need to get the deficit under control and pay down debt. The trouble is each and every dollar can only be spent once.<\/p>\n
If the government had to choose between national security and economic security, that would be bad enough. The risks on either front are difficult to quantify and even harder to compare. But there\u2019s a third claimant to those precious dollars; an electorate that still remembers the good times of the resource boom and the successive waves of tax cuts and middle class welfare. Everyone agrees that we need to tighten belts in the post financial crisis world\u2014only everyone thinks that their own belt is quite tight enough, thank you. Whatever the government does to rein in spending or boost revenue risks an electoral backlash.<\/p>\n
So what will the Treasurer have to say tonight? The promise of 2% of GDP defence spending is so far off it\u2019ll hardly rate a mention\u2014any details will have to await the White Paper. Perhaps there\u2019ll be a near-term adjustment to smooth the path towards the promised end point. Of much more interest will be the fiscal strategy the Treasurer lays out. Each year that hard decisions are deferred is another year we\u2019ll be living with heightened risk to our economic security. Moreover, the more that our debt grows, the harder it will be to fulfil the promise to boost defence spending.<\/p>\n","protected":false},"excerpt":{"rendered":"
Not since at least the end of the Cold War has it been so easy to paint a disturbing picture of the global strategic landscape. Ukraine\u2019s sovereignty has been trashed by Russia. Large swaths of …<\/p>\n","protected":false},"author":7,"featured_media":20312,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"footnotes":""},"categories":[19],"tags":[17,120,52,26,1025,1260],"class_list":["post-20276","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-policy-guns-and-money","tag-australia","tag-budget","tag-china","tag-defence-spending","tag-european-union","tag-global-financial-crisis"],"acf":[],"yoast_head":"\n
Budget 2015: global uncertainties and Australia's defence spending | The Strategist<\/title>\n \n \n \n \n \n \n \n \n \n \n \n \n\t \n\t \n\t \n \n \n \n \n \n\t \n\t \n\t \n