Transcription of Finance News Network Interview with Saxo Bank Chief Economist, Steen Jakobsen. Lelde Smits: Hello, I’m Lelde Smits for the Finance News Network and joining me today is Global Chief Economist of Saxo Bank, Steen Jakobsen. Steen, Welcome to Australia and to FNN.
Steen Jakobsen: Thank you very much.
Lelde Smits: As an economist living and working in Europe do you believe the region’s economic situation is better or worse than Australians may think it is?
Steen Jakobsen: I think better than perception, but in structural terms, probably a bigger event risk than most of the market is willing or able to understand.
Lelde Smits: And Steen, what concerns you most about Europe’s fiscal affairs?
Steen Jakobsen: That we have an inability to strike a balance between the political need for doing further integration. And, at the same time making sure that voters back this. And the way that you see that in Europe is of course that the Netherlands, Germany Finland to some extent, Denmark, are having great difficulty in implementing a lot of the integration issues.
Lelde Smits: The euro zone again fell into a recession in the third quarter. What do you believe is the solution to restoring growth?
Steen Jakobsen: I think we need to focus on the micro economy and leave aside too much of the macro potential impact.
Lelde Smits: The European Central Bank (ECB) has been very vocal in its pledges to support and strengthen the region. What is your assessment of the action taken so far?
Steen Jakobsen: It has been left to the ECB to do the dirty job of creating a sort of monetary easing and creating a put [a floor] on the equity markets and on the bond markets. If I want to look at things from more pragmatic terms, it is a waste of time, a waste of money. Because, essentially what they done is they are taking away the tail-risk for financial events but they increase the systemic risk.
Lelde Smits: Now Steen, you’ve said before, “We need a crisis in the region”. Why do you believe this is it important?
Steen Jakobsen: A crisis is good because it makes us real, we face reality. And, what is needed is that we need to fail. I mean, I think it’s part of the same answer to the first part of your question. Politicians are never going to give up. Unions here are never going to give up any of the entitlements they have before you have a deep enough crisis that you need to change. So, the difference here is really between the need and wanting something. You may want something, but only when you really need it will you have to change.
Lelde Smits: And Steen what do you believe the catalyst would be to such a crisis?
Steen Jakobsen: It is happening in front of our eyes. I mean, social tension is the first derivative of a crisis. So in Europe, you see the pictures of people in the street rioting and visa versa. It doesn’t mean that all of Europe is in flames. It just means, that we have reached the end of the road in terms of the ability of the austerity to have an impact or the austerity actually doing anything constructive.
Lelde Smits: Australians are often told we are the lucky country with rich resources and a robust economy. Where do you see our strengths and weaknesses?
Steen Jakobsen: I think you’ve been doing a great job. I think you are increasingly doing a poorer job in terms of transforming and changing the society into the next 10-15 years. So the strength of course being, you are the strongest one-trick pony economy in the world. Resources has been able to continue up in price while world growth has been coming down. But if I look at the weaknesses, it is the massive over-investment in mining.
I mean, mining was 20 per cent of all investments 10 years ago and now it’s 75 per cent. 80 per cent of the investment in Australia today is in LNG (Liquefied Natural Gas). At the same time, you can’t refine crude. You have unions who create absolute zero ability to make a more flexible labour market. You have the RBA (Reserve Bank of Australia), needing aggressively to cut interest rates and the currency which is everything being equal, is extremely overvalued.
Lelde Smits: So in your opinion, what is Australia really in need of?
Steen Jakobsen: I think you are in need of a new business model which creates the handover from the one-trick pony into a more long term sustainable model with higher degrees of SME’s (Small and Medium Enterprises), higher degrees of infrastructure and changing the structure of the Australian economy to be more innovative, more productive. Because, union labour costs are going up 8 – 10 per cent. And you know what, I can go to South Africa and get exactly the same recourses pretty much for one tenth the production costs.
Lelde Smits: Steen Jakobsen, thank you so much for your views today.
Steen Jakobsen: Thank you very much for having me.
Ends
