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Australian Agenda -

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(generated from captions) Good

afternoon, welcome to the program. The extraordinary

grounds in the Asian region,

China and India in

particular, have been

transforming our economic and

strategic outlook for years. Well today, the Prime

Minister announced a white

paper review of what this

transformation is going to

mean for Australia in the

years ahead. Called

"Australia in the Asian

century", it will be led by

Ken Henry and there is terms

of reference laid down that a

very broad indeed, he is going to have a big task

to the Government in the ahead of him, reporting back

first half of next year. Few would argue that the growth

of Asia does have enormous

implications for Australia.

It has changed our economy

already and as the Prime

Minister outlined in her

speech today, it will have a

big impact in the years and

decades to come. The white

paper on Australia in the

Asian century will make a

major contribution to public

debate and establish new

directions for public policy.

A national blue print for a

time of national change.

Well, to look at this white

paper review and what it can

achieve, we are joined now by professor Hugh White, the

head of the street enlgic and

defence study. Thanks for

your time. Nice to be with you. What do you think of

this review, is it a good

idea? It's a terrific idea

and I think it constitutes

one of the most important

foreign policy initiatives

that we have seen from a Prime Minister in a decade at

least and I think the speech

that she gave today to introduce this idea was a very interesting and

important speech, touched on

some important themes but

it's a bit tantalising because it is unclear whether

she is going to get to the

hardest issues that Australia

faces. Well, you are saying

this is one of the

significant foreign policy

things that a Government has

done for about 10 years in

Australia. Why is it that important? We have heard other Prime Ministers, Kevin Rudd and John Howard talk

about the growth of Asia.

Absolutely but I think what

Gillard has done today is to

put right at the heart of the

national agenda, for the

Asia's extraordinary economic first time, the facts that

growth is more than just a

big market opportunity for

Australia. In the real

sense, it changes our world.

It changes the kineld of

#w0r8d we live in because --

kind of world we live in. It

is no longer dominated by

western power. The whole

idea of Australia is a

reflection of western power

in Asia stretching back centuries and as Gillard pointed out in her speech

today, we are seeing now the

end of that era. So it is terrifically... Is she saying

that? Is she saying we are

going to see it because she

made it quite clear in her

speech today that the US, in

terms of military power, will

continue to be dominant?

reservation about it. That's That's right. That's my

why I find it a bit

clearly recognise how tantalising because she does

significant the economic rise

strategic and political of Asia is for Australia's

circumstances as well as for

our economic trajectory but same she can still see her

clinging on to the hope, the

desire, that America will

continue to be the strongest

country in the world and the

strongest country in Asia.

She says that in absolute

terms America will remain the strongest power and that is

true, but actually a bit

irrelevant because in Asia,

its capacity will be

significantly challenged by

China's growing power. The

strength of the United States

military power and the Asia pacific has seen an extraordinary period of peace

over the last 40 years or so.

Is that, in your view, going

to change? Absolutely. I

think we have seen in the

last 40 years, really since

the end of Vietnam War, it

has been uncontested by

anybody and that's what has

made Asia so peaceful. It

has been great for Australia,

been great for the whole region, saZ what made the

Asia century really. But now

as China's power grows, it

has got the capacity to

challenge America's ability to project power in the

western pahnge and the rise

in China's ability,

particularly to sink American aircraft carriers, has been very significant in the last

decade, will keep happening

in the future and that does reduce... It doesn't mean we

are talking about a US/China

conflict but it changes the

dynamics on the Korean

Peninsula. It changes in

which America and China see

their interests intention.

For example, it reduces

America's military options in

the event of a Chinese action against Taiwan or a Chinese

clash with Vietnam in the

south China sea or with Japan over disputed territories in the east China sea. These

days, America would have to

escalate much faster in order

to preserve its position

against China in those sorts

of situations. That's a

really significant change.

How does Julia Gillard's view

of the change in dynamics,

from what we have seen in

this detailed speech today,

differ to Kevin Rudd's

because this was very much a

Julia Gillard speech today,

not one of her Foreign

Minister Kevin Rudd's? It is

one of the reasons it is such an interesting and important

speech. It is the first time

we have seen Gillard engage

foreign policies substantively. I think the

really key difference here is

that she is focussing much

less ambivalently on the

significance of China's rise

and India's rise to a certain

extent and how that changes

Asia. The key there is in

the phrase she uses. She

uses "the Asian century".

Kevin Rudd used "The Asian

pacific century" which was

pulling the Americans back

into the picture. This is

terribly significant. On the about Asia. I think that is

other hand, I still think she remains ambivalent about the future of American power and what that means for

Australia's place in the

region. Now, Ken Henry, the

former treasury boss, has

been given the task of

leading this white paper review. How well placed is

he to do this job, to cover

both the economic

transformation but the

stratedgic transformation as well? I think he is very

well placed. He is a superb economist and understands all

of that side of things as

well as anyone in the

country. He is very

experienced and gifted

servant and policy maker so

he will make the policy work

which is very important. He

is a very broad thinker about the international situation.

He is very comfortable thinking about big questions

of the sort of future of American power and that sort

of thing. So I think he is

very well placed. Is there a

risk that the terms of

reference are too broad?

This seems like a fairly wide

scope to look at any number

of things in terms of where

the Asian region is heading?

Well, there is always a risk

with broad terms of reference

like this, that all the

review ends up doing is

skating across the surface

and not digging down to the

big questions that Gillard is

trying to see posed. The

challenge for ken and his

colleagues will be to drill

deep into these questions and

ask what does this really

mean for Australia's fundamental position in Asia

and position in the world.

They have got the terms of

reference to let them do

that. They have got the skills in Ken Henry to do

that. They have got some hints from Gillard that that

is what she wants them to do

but it still remains a bit of

a risk that we will end up

with a more spshl process. I

do hope that doesn't happen

-- superficial process. I do

hope that doesn't happen.

One of the things this review

will not do is the Prime

Minister says there's another

defence white paper scheduled

for 2014, is that fair enough

or is this a mistake? I

think it's a bit of a danger

sign myself. It is obviously

fair enough that this

process, run by Ken Henry,

shouldn't get into the

details of structure, how

many submarine's we should be

buying, but right at the

heart of the 2009 paper, was equivcation about whether or

not China's rise was changing

the dynamics of the region

and my worry is that this

white paper will make the

same mistake. Australia does

need to go back and recognise

that as power shifts from the

United States to China, the

role of the United States in

Asia and the role of China in

Asia will change. And the

worry that I have about that

exclusion clause of the

Gillard had about the defence

white paper is that it

reinforces the image that she

has not yet really recognised that the United States role

in Asia will have to change

and the big challenge in

Australia is to work out what role we think America can and

should play in the future and

do what it can to help try to

promote that role. Just

finally, if this white paper

comes up with findings that

China's role is going to be

much bigger than we expect on

an economic and strategic

front, what sort of policy

change would come out of it, what difference would it make

to Australia? Well, the

first thing to be absolutely

crystal clear about is that

we don't face a choice

between a world or a region that's dominated by America

on the one hand or China on

the other. We don't want to

live in an Asia that is

dominated by China but we

also don't want to live in an

Asia which is dominated by China in strategic

competition. So we need to

build policies that can help

build in Asia where the US

and China and other powers

get on together. That's a

big policy challenge for us

and I think that that should

be the real bottom line of

this process. Great to talk

to you. Thanks for your

analysis. After the break, we will look a little further

at this and also other issues

around today. Our panel this

afternoon Dennia and Lenore

from the 'Sydney Morning

Herald'. Stay with us.

Welcome back.

Time to check in on the

latest news headlines.

Here's Vanessa. A New Zealand special forces

soldier has been killed in

Afghanistan. The unnamed

soldier was shot in the head

during a gun battle with

suspected insurgents in a

compound near the capital Kabul this morning. He is

the fourth New Zealand

soldier to die in the Afghanistan war and the

second member of the SAS to

die in just the past month.

New Zealand Prime Minister

John Key said he felt for the

family of the soldier but

stood by his decision to send

troops to Afghanistan.

Newspaper columnist and broad caster Andrew Bolt has lost

his race discrimination

battle in the Federal Court.

The judge said that fair skinned Aboriginal people

were likely to have been offended by his newspaper

articles published in 'The

Herald Sun'. Mr Bolt has

slammed the decision as a

blow for free speech and has

refused to say whether he will apologise. Tony Abbott

has ignored business leaders

and even his own former

colleague, Peter Costello,

re-affirming his opposition

to individual contracts in

the workplace. The former

Treasurer has urged the Opposition Leader to keep

open a range of policy

options to address Australia's falling productivity. He also said

Mr Abbott should not play the

game of ruling things in or

out and stand by Liberal

values. A funeral has been

held for the little Sydney girl allegedly murdered

before being dumped in a bush grave. Six-year-old Kiesha

Weippeart has now been laid

to rest with dignity at a

service in Sydney's west

today. A private funeral was

held for her ahead of a public memorial next week.

The girl's mother and

stepfather who have been

charged with her murder were told about the service but

were not allowed to attend. The trial for the man accused

of killing Michael Jackson

has begun in a Los Angeles

court. Dr Coenraad Murray

was the super star's personal

doctor and prosecutor's

allege he gave the singer

drugs that killed him. The

jury must decide who gave the

popstar his last lethal dose

of anaesthetic, Dr Murray or

Jackson himself. And in

sport the magpie army has

flocked to Goschs Paddock this morning for

Collingwood's only open

training session ahead of

their grand final clash with Geelong. Thousands filled

the oval hoping to catch a

glimpse of the players they

hope will win the club's back

to back premiership. Darren

jolly and Ben Reid again

trained with their team mates

as the signs continue to look

positive for the pair ahead

of the big clash. The weather:

Thank you and Welcome back.

Welcome to our panel this

afternoon. Joining us here

in the Canberra studio. The

white paper, Australia in the

Asian century. What do you

think, is this a good move from the Prime Minister? Yeah, I think it's a good

idea. We have been hearing

and seeing a lot about the enormous stratgic and economic changes that are

going on in the world to

actually have a proactive look at how Australia should

position to benefit from that

and to figure out what to

could about any threats or

problems it might cause. I

think it's a good idea. Was

all of these things, Kevin

Rudd set up X million revuses

and inquiries and it was the

follow-through that sometimes

caused a problem and... Julia

Gillard has also been

criticised for too many reviews and inquiries as

well. In this case, this is

looking at the big questions

for the country. So I don't

see you can really argue with

it. In a lot of ways, you

could say do we need a review

to tell us that the growth of

Asia means big mining revenue for Australia and some

difficult strategic

challenges to balance China

and the US? Look, I think

it's a good idea. It's

positive direction. Having a

stepping back and having a look, importantly, having a

look at what we should be

doing before we actually

announce what we intend to do

in the region and so that gives... Kevin Rudd

announcing we are going to

have a community which never

really went anywhere. And

no-one knew about it. So I

think that's important. But

I do think that there is a

danger it's a bit of motherhood, yes, we know

China's important to us, we know that the security in the

pacific is important to us,

that the US/China alliance is important, Japan is

important. Aren't we doing

this already? So I think

that's, you know, it pull

it's all together into a nice

narrative but we should be

really on top of this and, you know, working through

some of the relationships

already. Speaking of Kevin

Rudd, the Prime Minister did

say today that this isn't

about setting up any sort of

new regional architecture

which could be interpret teted as certainly distancing

itself from that plan of

Kevin Rudd's. Do you think the Foreign Minister had a

lot to do with today's

announcement on this? No, I

think this was an initiative

of the Prime Minister and

clearly her putting her stamp

on both economic and foreign and strategic policy. That

said, I don't think it is

anything that he would

necessarily disagree with but

I think it is clearly her

initiative. And I think the

other thing, of course, is

that not only as Prime

Minister did Kevin Rudd

announce the Asia pacific community, also suggested the

six nations talks was the

other architecture that could be expanded to Australia. He

also fiddled with the defence

white paper, quite directly,

and really upset China in

that regard. So one would

hope that this white paper

sort of goes through the

system and comes out with a

series of options. It's

clearly going to be watched

very closeby by Beijing, you

would think, this white paper

process and what sort of

findings it comes up with in

relation to where China is

headed and what that's going to mean for Australia.

Perhaps one of the other

things too is our relations

with India. The PM did talk

about those in the speech

today and they haven't been all that good in recent

years. There is some

potentially major issues that

could come out of this.

That's right. I think the

other thing of course is that

it's coming ahead of Chogum

in Perth, then we have the

G20 meeting in southern

France, we have the APec

meeting in Hawai, President

Obama's meeting and then the

meeting in Bali so, what we

have got is a very full on foreign policy period over

the next six to eight weeks.

So it's quite a good tone

setter, I think, and will

assist the Prime Minister to

put herself on the foreign

stage. After all, this is

one of her perception

problems with Kevin Rudd. He

is seen as very adepartment

overseas, she much less so.

-- adept overseas, she much

less so. To say look, we are

very actively looking at our

role in Asia. Let's move O

industrial relations. Peter Costello, former Treasurer,

wrote a piece in the Fairfax

papers today having, well, a

not so subtle dig at Tony

Abbott saying he shouldn't be

playing the rule in, rule out

game. Following his comments

last week about the Coalition

not supporting the return of

individual contracts. Tony

Abbott was asked about it

again today and seemed to dig

in even further, saying "No,

no individual contracts now.

None in the future either".

Have a look. I made it

absolutely crystal clear that

there were certain policies that were part of the past

and were never going to be

part of our future. What I

also made crystal clear was

that is we want to work

within the existing Act and

the existing Act obviously

has no place for individual

statutory contracts. Now, he

is facing pressure, not just

from the former colleagues

but many of his own Liberal

party MPs as well. However,

as he has clearly pointed out

today, he does not support

the return of individual contracts. I think what

Peter Costello was saying in

that piece was a bit broader

than just the question of individual contracts. I

think it is that there is a

concern inside the party and

from some of these former ministers that Tony Abbott is

kind of shifting what the

Liberal Party has stood for

in terms of free market, in

terms of economic rationalism

in a lot of ways. Peter

Costello was talking about IR

but also protectionism in

that piece which is another

concern because it sort of an open question where the

Coalition is going to end up

on manufacturing policy and protectionist policy and Tony

Abbott keeps saying he is not

going to bind himself to

ideaiology. He said he is a

pragma-activity, he is not

going to deal in --

pragmatist. You will

remember a couple of months

ago when Nick Minchin was

still in Parliament, he

challenged Tony Abbott in the

party room and Tony Abbott

said if you had to choose

between policy, he would

choose pragmatish. I think that is causing some

problems. The comments that

he has made, Tony Abbott has

made today, have not gone

down well with particularly

those MPs who do want to see

the return or the return to

individual contracts, more IR

reform. I've spoken to a

handful of them today. Do you see this as a big chunk

of the party or is this just

a fringe group? I would put

it more as a fringe group and

certainly I think that those

who are speaking and

campaigning represent a large

group and probably have more

sympathy within the party,

wider sympathy within the

party, than just the three or four who actually are

prepared to talk out. There

are front benchers as well at

a very senior level who are

uncomfortable with what Tony Abbott is saying. That's

right. We noticed in that

grab Tony Abbott was unable

to say work choices. And so

this is what is at the back

of his mind. Let's not

forget he was an advisor to

John Hewston who came up with

a big idea and didn't get

elected. I think there's a

slight difference here in the expectations. Tony Abbott is working on the basis that

unless he is elected, Neal Brown, former Liberal

minister, made the same point

last week, saying, well,

unless you're elected, you can't do anything at all and I think Tony Abbott is

working on the basis, as he

said yesterday, every seat is

going to be hard to win whereas other people are

assuming they are going to be

in Government and want to

sensibly set up a policy

outline. But I think he is willing himself not to think

"I'm going to be elected".

There is also the

old-fashioned view that in

order to win seats, you

should have a clear policy

position. If you do get

elected, you have to have a

man date. It comes out of

balance, doesn't it, what do

Liberals stand for, you have

got to believe in something, great leaders in the past

have all been defined by what

they stand for, or how

politically pragmatic do you

have to be? We know work choices have been a huge

burden for the Coalition.

It's a balancing act, it

always is, does he have that

balance right? Well, we have

been waiting and waiting for

the point where Tony Abbott

switches to tell us

positively what he will do

rather than defining himself

by what is he won't do. The

fact that the Government has

been in such terrible trouble

has put off and put off and

put off the date where he has

to make that switch. We

really haven't got to it yet.

We really don't have a very

cohesive idea at all about

what an Abbott Government

would stand for. And yet

they are planning for the possibility of an election

just around the corner

because they all think that

Labor Party is about to switch leaders and call an

early election. Well, and

they are doing their best to

have that exact outcome.

What do you think? I think

that there has to be, at some

stage and I think written

about that he should have

adopted a different policy on

offshore processing, that he

should have supported and

should support the

Government's legislation on

offshore processing. From a

point of principle, this is

Liberal Party policy and has

been for years and so I think

that's something that - that

is one area that he should

have acted and mixed policy

and pragmatist. The other

thing is that he won back the

support which Malcolm

Turnbull had lost that base

by imposing the carbon tax.

By saying "This is what I

stand for in a conservative

sense". At some stage he is

going to have to make that

switch. We are all waiting

for it to happen. But of course the other thing he

says is "Well, you know, you

never step up when your enemy

is making mistake after mistake, why step into the space". Which you can

understand except that we are

getting closer and closer to

an election. We don't have

any idea. On manufacturing

policy for instance, you

know, traditionally, the

Liberal Party has stood for

free markets. Does it any

more? It is not clear that

came out yesterday and said it still does. Tony Abbott

my policy has been out there

since, you know, for more

than a year. That's true but

it's had presslittle scrutand

big question marks about it. most of the economists have

So he hasn't come in for much scrutiny yet and that is Labor's work. Speaking of

the carbon tax, there has

been some criticism, growing criticism about the

Government's carbon tax

plans, in particular and I

note Westpac was always one

of the strong supporters on

the carbon tax, the Westpac

Bank is now worried about the

floor price that is built

into the carbon tax. It does

get technical but essentially

there is a floor price so it

can't go any lower than -

what is the figure, $15 a

ton? That's right. Look at the international price, it could easily go well below

that. Is this a valid

criticism that they are making? Business is making

the criticism in the first

instance by pointing out that

if our carbon price tracks

along the floor price rather

than higher than that, which

is what treasury is estimating, the Government

will be spending more on the

locked in compensation for

house holds than it will be

getting in in permits. What

they are really worried

about, a, if the price -

floor price is hit, the

international price might be lower than that and therefore

they are at a competitive

disadvantage. They are also really worried about the

thing that you can ratchet

back in terms of spending is

the business compensation

which is, of course, what

they don't want. Where the

unclear. After the first carbon price will go is

couple of years, there's a

fair margin of error. The

price could go down below the

estimates without hitting

that floor prior but at the

outset, there is not that

much wriggle room. So it is

a legitimate concern. And

the budget can ill afford

further pressure like that.

That's right. To describe it

as a free market when in fact

there's a floor price, is, in

itself, contradictory and the

floor price rises, who nose

what is going to be

happening, the assumption is

that other countries will be the doing the same thing that

we are when most of them

probably won't be, so I think

that the floor price is a legitimate concern because

concern, what happens at the this is always been the

end of the fixed price,

whether the price of carbon

goes up or comes down, is a

problem for business. They are not going to change it

though. The legislation is

already in and the tax forum

next week won't be looking at

this. They have delivered it

and see what happens with the

budget. We are out of time.

We are going to have a look

at the European debt crisis

after the break. We will be

crossing to London, talking

to Westpac's James Shug, seeing how things are panning

out there. Stay with us.

Welcome back. It's been

another pretty strong day on

the Australian stock market,

finishing up nearly 1%. The

surge here and elsewhere over the last couple of days has

been driven by hopes that the

European debt crisis could,

well, be coming closer to

some sort of resolution.

Greek Prime Minister and

German Chancellor met in

Berlin overnight. They didn't announce any new measures but the Chancellor

of Europe's biggest economy

made it clear Germany will do

all it can to help Greece's

situation from - to prevent

it from worsening.


willing to offer all

necessary help. We think

that Greece carries a great

responsibility to meet the expectations and conditions

because our common experience

since February 2010 is that

through the euro, we are

closely bound together and

the weakness of one partner affects us all. TRANSLATION:

You see how big the effort

and, at the same time, how

big the sacrifices of Greece

are. In fact, it is true

that the conditions change as

the recession has been much

worse than expected. This is something that changes the

conditions but not the

targets. Well, we are going

to go now to London and

financial market's gur oou,

Westpac James, joining us to look further at where things

are at and heading in Europe.

Thanks for joining us.

Firstly for those who may

know the bv following this

all that closely. How did

Europe get into this mess?

Good afternoon David. Look,

Europe had a decade of low

interest rates, property

booms in some economies

because interest rates

converged below German level

when countries joined the

euro and governments allowed themselves to get bloated.

They took advantage of the

revenue that's were flowing

in, to hire lots of public

servants, to increase

spending programs, try to

lift the living standards of their economies, but then

when credit dried up in the

credit crunch of 2007/2008,

these economies started to

slow, the realisation came

through that debt levels had

risen, Government debt levels

had.risen to levels that are

now proving to be unsustainable. In the case

have Greece, they had fiddled

with the books anyway, it was only in November 2009, that

the true extent of the Greek budget deficit position was

revealed. So we have got the

situation now where financial

markets have actually decided

it will cease to lend to the

governments of Greece, Portugal and Ireland. In the

case of Ireland, because the

Irish Government guaranteed

the banks and the banks are

now making huge losses there

because of the over exposure

to the property sector and so

those three governments no longer have access to

financial markets and have

had to be bailed out by the other governments in Europe. But it's getting to the

situation now where

electorates, particularly in

geermny, saying we don't want

this to keep going on.

That's where we are at the

moment. Well, the US, the

UK, Australia and plenty of

other countries watching all

of this fairly nervously have

been telling Europe they need

to deal with this, deal with this quickly and deal with

this effectively. You

mentioned the current bail

out fund which has a capacity

of 440 billion euros. There

is talk of increasing that to

2 trillion euros or more. Is

that what we are - is that

the sort of ballpark that is

being discussed? It is. The

reason there is that 2

trillion euro number is that

that is the combined value of

Italian and Spanish

Government bonds

outstandings. The argument

being that we want to prevent

contagion from the problems

in the smaller European governments, Portugal,

Ireland and Greece, spreading

to those larger economies. What markets would like to

see is some mechanism put

into place to ensure that if financial markets decide they

are not going to keep lending

to those governments, the

bigger governments of Italy

and Spain, then there is a

mechanism put in place to ensure that those governments

can continue to operate. If

you like, ring fencing the smaller governments which are

probably going to have to

default on their debt at some

point fairly soon, but ensuring that the larger

governments, which are simply

too big to fail, don't see

similar problems emerge for

them. The issue in Europe is

the banking system is going

to take a huge hit when we

see the debt restructured of those smaller governments and if the banking system is

going to be need to be bailed out, particularly in France,

Germany and Italy, the banks

there will need to be recaptalised by their

governments. If the spannin and Italian governments were

to see a similar situation

emerge for them, where they

no longer could service their

debt, then it would mean the

end of the European banking system and that is the situation that absolutely has

to be avoided. You talk

there about the role of some

of those bigger economies.

You would have seen those

comments overnight from

german Chancellor about the

fact that they are all in it

together, they can't let the whole thing fall over, obviously, and doing all

that's necessary to stop that

happening. What does that

mean, how willing will

Germany be here to play

ball? Well, David, that's a

really good question because

he is saying they will do all

that is necessary but not

saying what that is. The Greek Prime Minister has been

saying "We are putting in

place huge efforts to ensure

that we meet our budget

deficit reduction targets"

but he has lost control of the Greek people. That's

been clearly demonstrated by the riots and demonstrations

and so on that go on all the

time. Just because the Greek Government manages to put

into place measures, they are

not actually proving to be

successful in terms of

pulling the budget deficit

down. So there's a lot of

political talk going on.

This weak, there has been a

sense amongst the investor community that maybe European

policy makers are pulling the

finger out and putting in

place some sort of plan, but

again, we don't really have

the specifics of what it

might be. There was talk

that the fund might be

leveraged up from 440 billion

euros to a much larger

number, but then the various

organisations or institution

that's could be involved in participating in doing that

have said "No, it's nothing

to do with us". So there is

this sense that something is

going on but we don't know

what. So this week is going

to be pretty critical, I

think, in terms of get

something sort of

announcement through. We

have got a vote in Germany on

Thursday, which will - upon

which the german contributions of the current

bail-out package is

dependent, so that's a near term hurderl and then next

week, October 3, we have to

see Greece get the sixth

chant of the bail-out package

that has already been

committed to it, otherwise we are going to see a Greek

default in the next few

weeks. So really short-term hurdles that need to be

passed before we see any sort

of real resolution to this.

And this is where the politics is getting into some

of these internal decisions

in geermmy and in Greece. So

the next week or so will be

critical. If they can tick

all the boxes, do all the

right things and get the package that everyone wants in place, does that suddenly

mean we are out of the woods

or are we going to continue

to see a period of

instability? Not at all

because this next - this

sixth Tranch worth 8 billion

euros to Greece is just one

further small step in terms

of ensuring that Greece can

continue to meet its

obligations. We are going to

go through this process again

and again and again until

ultimately markets throw up

their hands an say "Enough is enough". I think at that

point, policy makers will

recognise that the least bad

option is to put in place an

orderly debt restructure for Greece with Ireland and

Portugal probably following.

That is the banks in Europe

write-off maybe half of what

they are owed by these

governments and to pull down the debt levels of those

govmgts that way. Now, at

this -- governments that way. Now, at this stage it has

been defend that that is an

option but the -- denied that

that is an option, with them

denying it is an option,

means that it is something that they are discussing

behind closed doors. There

was commentary overnight that

some officials are arguing

that the bond holders do need

to participate more heavily

in this write down of the

debt. So that's the probable

end game, a debt restructure

of the smaller governments.

We are not quite there yet.

We think that Westpac will

probably be announced before

the end of this year

however. And just finally

then, James, for the rest of

the world, clearly there's enormous implications of

whatever happens in the next

week or so there. How

exposed is Australia in your

view to what's happening? Look, it's exposeed in

several ways. Firstly, risk

diversion internationally is

increasing. People are less

inclined to take on riskier

assets because of concerns

that global growth will slow

because Europe is going to go

into recession, because of

concerns that the banking system interconnections will

spread from Europe into other

parts of the world and that

that could lead to increased

funding costs and so on. One

of the obvious impacts on

Australia is via the weaker

Aussie dollar. It is seen as

a risk asset. It is also

seen as a proxy for the

global growth story. So you

could argue that for some

businesses in Australia, it

is actually a good thing this

is going on because it is

helping pull down the Australian dollar and

environment where it has been

causing some problems in the

Australian economy. But certainly in terms of the

stock market impact, if we do

see this debt restructure put

in place, I think that that

will be associated with that

we could see further losses

on stock markets and that

will flow through into weaker

markets in other parts of the world. There are positives

and negatives in there for Australia potentially going

forward. Live from London,

thanks so much for your

analysis of this unfolding

situation. We are out of

time for today's show. Stay

with us after the break, the news is next.

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