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Rudd warns of recession or depression if G20 -

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Rudd warns of recession or depression if G20 fails

The World Today - Friday, 27 March , 2009 12:21:00

Reporter: Peter Ryan

TANYA NOLAN: The Prime Minister Kevin Rudd has warned of a prolonged global recession or even a
depression if next week's G20 meeting in London collapses because of disagreement and self
interest.

Speaking earlier today in Washington Mr Rudd has highlighted the need for coordinated political
action to avoid a repeat of the acrimony and descent into protectionism that exacerbated the Great
Depression.

Mr Rudd has also joined the US Treasury Secretary Timothy Geithner in calling for a super regulator
to rein in the global financial system.

I'm joined now in the studio now by our business editor Peter Ryan.

Well, this week we've seen some positive signs that the global financial crisis might be easing.
Are the Prime Minister's fears about recession or depression unfounded?

PETER RYAN: Well Tanya, Kevin Rudd is a keen student of history and as a former diplomat he knows
all too well that at many summits, national self interest is more often than not the overriding
factor.

But he believes next week's G20 summit should be different and it will be critical in tearing down
those fear-laden barriers and keeping protectionism at bay.

And of course one target is the US Congress, which is already showing signs that trade barriers are
getting tougher.

Mr Rudd used the example of a critical 1933 summit at the height of the Great Depression, also in
London, where world leaders simply couldn't reach agreement on how to resolve the crisis. As a
result the depression got worse, trade barriers increased and currencies were devalued.

Seventy-six years on, Mr Rudd is clearly concerned that without global unity, the mistakes of the
Great Depression could be repeated.

KEVIN RUDD: The challenges are great. The urgency is great. The obstacles are substantial. History
reminds us of the consequences when nations fail to work together.

In the midst of a crisis we are in danger of markets and governments being overwhelmed by
complexity.

At its core however, the challenges we face are clear for all to see. The policy responses also are
relatively clear. Political will is what is needed most to prosecute that course of action.

TANYA NOLAN: That was the Prime Minister Kevin Rudd speaking in Washington earlier today.

Well Peter, he's definitely targeting his audiences while he's overseas. What sort of solutions is
Kevin Rudd proposing?

PETER RYAN: Well that's right Tanya. This speech was designed to rattle some very specific cages
within the G20, ahead of next week's meeting, and the Prime Minister was clearly working to set the
agenda today.

For example, he's called for a rapid reform of the International Monetary Fund, which failed to
accurately predict the extent of the crisis, and he wants changes to its funding mechanism.

He wants tougher regulation of financial institutions and markets, including those mysterious hedge
funds, and importantly a 12-month ban on protectionist policy is coming into effect.

And he wants countries to do more on the lines of pump-priming economies that we've seen in recent
months, perhaps at the level of two per cent of GDP next year.

TANYA NOLAN: And the Prime Minister's comments coincide with plans for an all-out regulatory
assault announced by the US Treasury Secretary today. How has the market responded to that idea?

PETER RYAN: Well it's been a big week on Wall Street. Wall Street has rallied and over the week
today's gains have extended the market's best monthly gain since 1974.

And there is indeed renewed optimism that the plan might just work, even though it means the
effective printing of trillions of US dollars to get toxic assets off bank balance sheets.

And as you said, Timothy Geithner wants to go further. He wants that single regulatory body. In
particular he wants to control institutions deemed 'too big to fail'. That's a clear reference to
the insurance giant American International Group, which is at the heart of this crisis and the
controversy over multi-million dollar performance bonuses paid out to groups of executives.

And for the first time he wants to regulate the multi-trillion dollar derivatives industry,
including credit default swaps that are at the heart of the financial can of worms we're seeing
today.

TANYA NOLAN: The trillion-dollar question - will it all be enough to drag the world out of the
crisis?

PETER RYAN: Well there's a lot of pressure on this single G20 meeting, but also on Barack Obama to
deliver a solution that will rescue the US economy and ultimately the global financial system.

He has taken historic action this week, long awaited action but the reality is that he can only
touch the tip of this financial iceberg and manage expectations of when the system might actually
return to normal.

The 'New York Times' columnist Thomas Friedman, summed up the challenge for the US President in
quite a scary way when he spoke on 'Lateline' last night.

(Excerpt from Lateline, 26/3/08)

TOM FRIEDMAN: One thing that has been missing from the beginning, is a sense of, for the average
American, how big this problem is, and, you know, the image I've really been using from the
beginning of this crisis is that incredible scene in the movie 'Jaws' where Roy Scheider first
beholds the great white shark.

And after he sees the shark he walks, you know, wide-eyed up to the captain and he says, 'We're
going to need a bigger boat'.

And we are going to need a bigger boat. And right now, that sense that this is so big. You know,
Leigh, we built up a credit bubble that was this big!

And you know what that means? The hole we're in is (makes sound effect) this deep!

And I think the President still hasn't quite conveyed that to the American people.

(End of excerpt)

TANYA NOLAN: Wrestling with sharks. That's 'New York Times' columnist Tom Friedman and that
analysis from our business editor Peter Ryan.