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Tonight - paying for the promises.

We have promised the Australian people tax cuts without a carbon tax. But the quantum of those tax
cuts and the savings that to fund those tax cuts will be announced in good time for the next
election.

And a leaked internal document says they're looking for $70 billion of savings.

You can only find that kind of money in the Government's budget if you say we'll smash education
right across the board, we'll smash into aged pensioners right across the board, we'll smash into
Medicare right across the board. That's the kind of thing you have to do $70 billion.

This Program is Captioned Live

Good evening, welcome to 'Lateline'ment I'm Ali Moore. In the US this week's extraordinary ride on
the sharemarket was preceded by a deal in Congress to lift debt ceiling, but only after much
political haggling. That raised the ire of China's America largest creditor holding over a trillion
dollars of US debt. At the same time, as a reminder of Beijing's growing military power as well as
economic sway, just this week China started sea trials of its first ever aircraft carrier. So what
does the future hold for China and the unit states as the global power shifts towards the east.

If things happen the United States, they will also have negative consequences for China and vice
versa. We an inextricably linked and an inextricably linked and that reality in many respects I
think augurs well for the United States and China learning to live with each other in the 21st
century.

US assistant Secretary of State for East Asian and Pacific affairs Kurt Campbell is our guest
tonight from Perth. guest tonight from Perth. As well we'll cross to London to get a final look
extraordinary week. First our other headlines. Republican candidates compete for attention in the
First State to vote in vote in the presidential primaries. Sweeping changes recommended in the
transport of prisoners following the prisoners following the death of a man being moved between
gaols. And a champion's welcome. welcome.

Both sides face budget woes

ALI MOORE, PRESENTER: There are budgetary woes on both sides of politics tonight.

The Government appears to be winding back its commitment to a forecast budget surplus of $3 billion
by 2012-13.

And the Opposition's refusing to detail how it will find $70 billion in the budget to fund its
promises.

From Canberra, here's political correspondent Tom Iggulden.

TOM IGGULDEN, REPORTER: Leaked documents show Tony Abbott wants to take a blow torch to the budget,
but he's not revealing where up to $70 billion of savings will come from.

TONY ABBOTT, OPPOSITION LEADER: We have promised the Australian people tax cuts without a carbon
tax, but the quantum of those tax cuts and the savings that we will need to fund those tax cuts
will be announced in good time before the next election.

TOM IGGULDEN: The Prime Minister says the revelation's put the Opposition on shaky economic ground.

JULIA GILLARD, PRIME MINISTER: So I think they've got some questions to answer about how on earth
they go themselves into this position and how on earth they're going to get themselves out of it.

TOM IGGULDEN: But the Shadow Treasurer's making no apologies for the massive planned cuts.

JOE HOCKEY, SHADOW TREASURER: It's a significant number but I'll tell you what we're doing.

I'll tell you what we're doing. We are going through the budget line by line, item by item, finding
$50, $60 or $70 billion is about identifying waste, identifying areas where you do not need to
proceed with programs.

JULIA GILLARD: (Laughs) Look, how ridiculous. $70 billion.

BOB BROWN, GREENS LEADER: $70 billion lost to the Australian people.

TOM IGGULDEN: That's more than 20 times the $3 billion budget surplus the Goverment's predicted for
the 2012-13 budget. One that needs a healthy increase in the tax take to become a reality.

Lower economic growth predictions are making even that less likely.

JULIA GILLARD: It makes the challenge of bringing the budget back to surplus in 2012-13 more
difficult. But it is certainly our objective to return the budget to surplus in 2012-13 and we
expect to achieve that.

TOM IGGULDEN: That word 'objective' appears to be a step back from what's been an unqualified to
return to surplus. The Opposition says it's another blow to the Government's credibility.

And so it seems each side is accusing the other of the same thing. As with most things in politics
these days a lot of the argument comes back to the carbon tax.

Tony Abbott's direct action alternative is one of the things he'd have to fund whilst cutting
taxes. There's also a suggestion he'd have to buy back carbon permits from businesses if he
abolishes Julia Gillard's carbon tax.

TONY ABBOTT: I would say to businesses if the carbon tax comes in, only buy the credits that you
need for the life of the current government.

TOM IGGULDEN: But amongst the division there was agreement on one issue.

Tony Abbott says he will support the right of farm owners to stop mining companies from coming onto
their properties to look for resources without their permission.

BOB BROWN: He's adopting Greens policy and I've been critical of Mr Abbott in the last few minutes,
but where he takes on good Greens policy like that I'll say "wise move."

TOM IGGULDEN: A welcome back from holidays for the Opposition leader.

Tom Iggulden, Lateline.

Aspiring Queensland politician stood down

aspiring Queensland politician has stood down from his candidacy over an email which has him
suggesting the Prime Minister you be should assassinated. An email has been circulating in which
the LNP candidate for the state seat of Cairns Paul Freebody describes Julia Gillard asse evil and
hopes she follows the history of assassinated US from President John F Kennedy. He reportedly
claims the email has been been tampered with. The state director of the LNP Michael O'Dwyer says
Paul Freebody has voluntarily stepped aside while

Coroner calls for prison van improvements

ALI MOORE, PRESENTER: A coroner in New South Wales has recommended big changes to the way prisoners
are transported.

It follows an inquest into the death of 59-year-old Mark Holcroft, who collapsed in the back of a
prison van in 2009.

Other inmates tried desperately to raise the alarm but their cries were ignored.

Deputy State Coroner Paul McMahon has called for improved monitoring and communications equipment
on board prison vans.

And one prison officer could face disciplinary action.

Karl Hoerr reports.

KARL HOERR, REPORTER: Nearly two years after Mark Holcroft's death, his siblings are hopeful the
change they've been calling for is on the way.

CHRISTOPHER HOLCROFT, BROTHER: It's not 18th century, it's the 21st. We need to look after these
people in their management, and is that not a measure of society, how we do this?

KARL HOERR: The 59-year-old was part way through a sentence for drink driving in 2009 when he
collapsed and feel unconscious in the back of the prison van between Bathurst Gaol and the Manus
Prison Farm in southern New South Wales.

(Start re-enactment).

PRISONER 1: (Banging on wall of truck) Open up, come on!

KARL HOERR: Last year other inmates who were onboard the van told Lateline they did everything they
could to convince the prison officers to stop but they kept driving.

(End re-enactment)

ROLLAND MARSH, FORMER INMATE: We were yelling screaming, men were crying. It was just a terrible
situation to be in.

KARL HOERR: The actions of one of the prison officers attracted serious criticism from Deputy New
South Wales Coroner Paul McMahon.

Peter Sheppard was monitoring moving images of the inmates when Mark Holcroft fell ill near the
town of Batlow.

PAUL MCMAHON, DEPUTY NEW SOUTH WALES CORONER (Read Statement): I'm comfortably satisfied that
having seen the inmates in the front compartment banging on the floor, Mr Sheppard assumed that
they were getting bored and thereafter simple chose to ignore what was going on.

He either did not look to see what was happening in the other compartments, or, if he did look, he
was not telling the truth about what he saw. Either way his attitude to his duties as DCS
(Department of Corrective Services) officer was totally inappropriate.

KARL HOERR: New South Wales Corrective services has been asked to consider disciplinary action
against Mr Sheppard. But the coroner did concede that stopping the van would not have altered Mark
Holcroft's chances of surviving the heart attack.

The inquest also heard that a public address system onboard the van hadn't been working for months.
The Department has vowed to install two-way intercoms that can also be used by inmates in all
prison vans by 2014.

Correct Services Commissioner Ron Woodham said in a statement:

RON WOODHAM, NSW CORRECTIVE SERVICES COMMISSIONER (Read Statement): This will ensure that inmates
transported in our vans will be able to communicate with escorting correctional officers while in
transit.

KARL HOERR: The Coroner wants this rollout to happen as quickly as possible.

Another recommendation is for the images captured on vans to be recorded and stored for at least 14
days. At the moment the cameras are purely for monitoring and Corrective Services has resisted
recording cameras because of the costs.

Other recommendations have already been adopted, including food, water and compulsory toilet stops
on long transfers.

PETER DODD, PUBLIC INTEREST ADVOCACY GROUP: We want a culture in New South Wales where Corrective
Services respects the human rights of prisoners and respects the daily needs of prisoners.

CHRISTOPHER HOLCROFT: And what we're looking at is the inmates who come now, after my brother,
might be in jail for drink driving, etc., and their treatment. And all we're saying is please treat
people humanly.

KARL HOERR: Mark Holcroft's family believes the findings will make a difference.

Karl Hoerr, Lateline.

Westpac's Shugg discusses tumultous week

ALI MOORE, PRESENTER: It's been a tumultuous week in economics and finance around the globe.

Stock markets have taken investors on a rollercoaster ride.

There've been rumours that France would default, and now four Eurozone countries - France, Italy,
Spain and Belgium - have banned short selling of selected bank and insurance stocks in an attempt
to repel so-called pin-striped looters.

And just a short time ago, Italian prime minister Silvio Berulsconi announced new austerity
measures which will cut government spending by 45 billion euro over the next two years.

To discuss the week's events and their ramifications, we're joined now from our London studio, or
from London I should say, by James Shugg, Chief Economist at Westpac Institutional Bank.

James I know that markets at the moment are incredibly sensitive to any information and just
hitting the markets are the latest retail sales numbers for the US; are they good or bad?

JAMES SHUGG, WESTPAC INSTITUTIONAL BANK: Yes, good evening Ali. They were actually pretty good, a
little bit stronger than expected when you take out autos and gasoline, so core spending picked up
slightly to 0.3 per cent in the latest month. But there were some upper revisions to the previously
published numbers.

So it looks like the US consumer maybe wasn't quite as weak as some of the other figures that we've
had up until recently have been saying.

That's a very positive sign for the US market open.

The Dow Futures haven't rallied on that but at least they didn't fall away on a back of a weaker
than expected number.

So it looks like, for the time being at least, the positive sentiment that's prevailing in the
market, that's in the market today, will prevail.

ALI MOORE: Well indeed, tell us about Europe, because of course Australia closed higher, Asia was a
little mixed. Were European markets, were they holding their gains?

JAMES SHUGG: I think that it was a case of European markets catching up to the late rally that we
saw on Wall Street last night, which saw, you know, the Dow end up four per cent or so.

So there've also been some local developments, as you say the short selling ban, probably wasn't
really a factor at play. History shows that these sorts of attempts by politicians to meet black
markets tend not to have any lasting effect.

But, in fact, we had some disappointing French GDP numbers. The French economy stalled in the
second quarter, which is worrying given that we get German, and indeed European, GDP numbers for
the second quarter on Tuesday next week.

So there'll be some nervousness about that, but just, as I say, for the time being, it's this
optimism related to the rally on the US markets yesterday and the fact that it looks like being
sustainable today, that's helped keep European market sentiment positive.

ALI MOORE: At the same time, I guess though James, you probably have never seen a week where it
really was, rollercoaster is, I suppose, the most apt description for what was going on. Is that
going to keep going or do you think the worst is over?

JAMES SHUGG: Ali, look I've been in this business for 25 years and it is one of the most
extraordinary fortnights, you know, that I've ever seen. I think there's more to come, that's the
honest truth.

We think that there's a real concern's going to emerge about the Japanese economy, related to power
shortages, given that they're shifting away from nuclear energy, shutting all their power stations
there. We think the Chinese economy might slow more than expected, that's another risk to watch
for.

And we think that the European sovereign issue is going to become a lot worse before it gets
better. We probably will see at least two or three defaults, or at least debt restructures from
some of the smaller European governments.

And we think that the US economy still hasn't, still haven't factored in just how weak we think the
US economy's going to be over the next couple of years.

All of those four issues - Japan, China, US and Europe - if they sort of hit at about the same
time, could really have significant downward impact on the stock market going forward.

So I wouldn't call a bottom yet.

ALI MOORE: Indeed, but at the same time of course, as I just said, we had this new austerity
package just in the last couple of hours from Italy. Does the market read that as more of the same
or something perhaps better? More of a recognition?

JAMES SHUGG: It views it as a sign that governments are doing something. But the issue has been
to-date that none of the austerity packages in Greece, Portugal or Ireland really have been
successful. The targets haven't been met.

So I think that you get a positive announcement effect, but then over time I think markets come to
realise that this debt issue is not going to go away without a substantial amount of the debt of
European governments simply being written off. And we haven't yet got to that point.

Getting to that point is going to involve a lot of pain for the banking system in Europe and
flow-on impact for the economy. Which we think the whole European economy will be in recession in
2012 and that will have a flow-on impact, of course for stock markets.

So we get the positive announcement effect but I think that the longer term story is still
negative.

ALI MOORE: Markets are not for the faint hearted at the moment. James Shugg, many thanks.

JAMES SHUGG: Thanks Ali.

Fifth person dies as police defend riot response

ALI MOORE, PRESENTER: In the aftermath of Britain's worst rioting in a generation the political
battles are now well underway.

London's Metropolitan Police have defended their response to the riots after being criticised by
prime minister David Cameron.

As the debate continues there are reports a fifth person has died from injuries received during the
riots.

The ABC's Norman Hermant reports from London.

NORMAN HERMANT, REPORTER: Nearly a week after the first riots rocked Britain, another victim.
Sixty-eight-year-old Richard Bowes has died from his injuries after he was beaten by rioters in
London. A 22-year-old man has been arrested suspected of murder.

In Parliament, in the media, on the streets, there's no end to the debate of what caused these
riots. Was this the work of criminal mobs or something more?

FARIDA MONTAZ, TOTTENHAM RESIDENT: I've heard a lot of people say "How can people destroy their own
community?" But I don't think some of the people that have been, you know, doing the extreme
violence feel part of the community.

NORMAN HERMANT: British officials say they will turn to experts in the US to learn from their
experience with unrest and gang culture.

Twenty years ago South Central Los Angeles exploded after police officers were acquitted of beating
a black man, Rodney King. Community activists say one thing they've learned: tougher law and order
measures alone won't stop further outbreaks.

NAJEE ALI, FORMER GANG MEMBER: You have to address the underlying systematic causes of people's
frustration, whether it is lack of employment, police abuse, lack of adequate healthcare,
educational opportunities.

NORMAN HERMANT: In Britain, it is clear one of those underlying problems is whole sections of
society who feel abandoned by the Government.

These self-confessed looters have told a reporter they have no regrets.

REPORTER: And what about you, any bad feelings at all? Have you thought about it at night when
you've been sleeping in your bed?

LOOTER: No, because I'm watching my plasma that I just got. (Laughs) It was like Christmas came
early.

NORMAN HERMANT: These young men say they've tried to play by the rules. They've tried for jobs
again and again. It hasn't worked.

LOOTER: Every time I go out, yeah, I'll go Bromley, West End, I'll dress the smartest I can I even
begged my mum for a new pair of trainers, a pair of shoes that are smart shoes.

Go out, hand out my CV, you know, talk the politist I can. But no, they ain't noticing me, so
obviously if they ain't noticing me from that, I'm going to have to start doing it a different way.

NORMAN HERMANT: So far the government response has been to focus on an overhaul of police tactics
and legal measures to control unrest. In an era of austerity there's been almost no talk of social
reforms and some are warning that would eventually mean these scenes will be repeated.

Norman Hermant, Lateline.

US calls for sanctions on Syria

ALI MOORE, PRESENTER: US secretary of state Hillary Clinton has called for wider international
sanctions on Syria as forces under the regime of Bashar al-Assad stormed two more towns, continuing
their violent crackdown on dissent.

Activists say the army killed at least 24 people yesterday and several more people today, as new
protests flared in several cities following morning prayers.

Mrs Clinton has called on China and India, as the major investors in Syria, to increase economic
pressure on the regime by applying sanctions on its gas and oil exports.

China's high-speed trains plagued by problems

ALI MOORE, PRESENTER: China's state-owned train manufacturer has announced a recall of 54 bullet
trains as problems continue to plague the industry.

The trains to be safety checked run along the Beijing-Shanghai high-speed rail line.

The announcement came a day after officials placed a temporary halt on all new high-speed rail
projects.

The country's flagship project has been called into question after a crash on another line killed
40 people last month, provoking public anger and leading to allegations of mismanagement.

US, China can live in peace: Campbell

ALI MOORE, PRESENTER: With the rise of China as an economic superpower, it's forced many nations to
re-evaluate their relationship with Beijing.

None more so than the United States, which is now indebted to china to the tune of more than a $1
trillion.

And Washington also has to deal with China as a possible military and geopolitical threat.

The man whose job it is to step carefully through this diplomatic minefield is Kurt Campbell, the
US assistant secretary of state for East Asian and Pacific affairs.

He's currently in Perth for the Australian-American leadership dialogue. I spoke to him a short
time ago.

Kurt Campbell, many thanks for visiting Lateline tonight.

KURT CAMPBELL, US ASS. SECRETARY OF STATE, EAST ASIA AND PACIFIC: It's great to be with you, thank
you.

ALI MOORE: Your visit to Australia comes at a very interesting time, not just the economic
upheavals but also as China puts its first aircraft carrier to sea trials, a significant step in
terms of China's military modernisation.

If I can start by asking you about China, do you consider it inevitable that Beijing will one day
challenge American dominance in this region

KURT CAMPBELL: Well look, do I think that China will pose a challenge to the United States and
other countries in the region? The answer to that is absolutely yes.

The key is going to be whether our two countries, the United States and China, can learn to live
together in peace. Whether we can ensure that our competition really is a peaceful kind of
competition and that we don't turn to a kind of conflict. That would be terrible and destabilising,
not only for the United States and China, but every country in the region.

And I believe that there is enough wisdom in Washington, in Beijing to take the necessary steps to
avoid that kind of very dangerous kind of escalatory behaviour.

And I must also say that it is significant that China is fielding an aircraft carrier. But let's
remember the United States and other countries have had aircraft carriers for decades, and this in
many respects is something that major powers aspire to and it's not out of the ordinary for China
to want to build an aircraft carrier.

ALI MOORE: That said of course, the US has been dominant in the region for the past half a century,
is there any reason to think that China would not want to take its role as dominant player when the
time is right?

KURT CAMPBELL: Look, we work closely with China diplomatically and I think there is a recognition
that over the course of the next 30 or 40 years the United States is going to continue to play a
very substantial role. And that China, I think, is wary about seeking to overtly challenge the
United States's dominant position in Asia.

We still have lots of areas where both countries need to cooperate, and I think that that's going
to be the animating feature of diplomacy between our two countries.

Is it natural that China will want to play a larger role? I think the answer to that is yes. And it
will also be important for the United States to figure out the best ways to work with China, to
make sure that China has an important role, both in institutions and in all aspects of political
and economic life in Asia.

But I think sometimes too much is made of the fact that we are straying inevitably towards
conflict. I don't think that's in our interests and it can be avoided.

ALI MOORE: You've made the point elsewhere that, quote, "History is littered with bad examples of
rising states and established states trying to work together." So in the context of trying to work
through the issues with China, what are the lessons from history?

KURT CAMPBELL: Well, you know, what you're referring to are these, often referred to in academia as
hegemonic challenges, when you have a rising state and then an established state.

If you look back at the experiences where these kinds of transitions have failed miserably, it's
generally in circumstances where the established state has denied the rising state a role in global
politics.

Like, for instance, Germany both before the First and Second World Wars, when they were not given
the role they thought they deserved in global politics.

I would simply say, when it comes to China, in fact everyone is straining to give China more
responsibility, a greater role in the G20, in virtually every aspect of global politics and
economics. If anything, it is China that is occasionally reluctant to play that larger more
significant role.

So I don't think that there can be any doubt but that there is a desire for China to play the kind
of role that is commensurate with its growing status as a major player on the international stage.
And I think that the simple fact that leaders and strategists in both countries are aware of the
bad examples, and what can go wrong, and they study those aspects very carefully.

That in itself, I think, gives us some hope that such negative consequences and outcomes can be
avoided.

ALI MOORE: It's interesting that you say that there that China, it's often China that is the one
that is perhaps more hesitant to take these roles, and China does have many important seats at
numerous global tables of dialogue, if you like, but ...

KURT CAMPBELL: Indeed, yes.

ALI MOORE: ... has China shown the willingness, do you think, to take the responsibility that goes
along with those seats?

KURT CAMPBELL: I would say generally speaking that's still a work in progress. I think China is
still reluctant to play a major leadership role in the way the United States, and indeed Australia
has in many fields.

One has to recall that even though we see an enormous role for China in global politics, and a more
assertive, more engaged China in world affairs, the truth is the primary focus of China's leaders
is domestically still. On domestic stability, on development, and that's where most of the energy
of the Party lies. Much less on global politics.

ALI MOORE: But that said of course, just today we got the secretary of state, Hillary Clinton,
urging China and also India to try and put pressure on Syria because they have large energy
investments in that country.

But that's not really China's style is it? I mean the Chinese much prefer non-interference in each
other's internal affairs.

KURT CAMPBELL: I think that's generally correct. But I will note that we have had success in the
past when we worked closely and over a sustained period with China. For instance, in the past the
United States and China have been able to work together to urge restraint and moderation on the
leadership in North Korea.

And I think China has joined with the international community on sanctions with respect to Iran.

The Middle East is very complicated for China, and even though they are very worried about
developments across the region, the so-called Jasmine Revolutions, they themselves are going to be
reluctant to get deeply involved in many of these circumstances.

ALI MOORE: Of course, talking about the fact that China is developing aircraft carriers and, as you
point out, why not I guess, other powers have them as well; but all of this is coming at a time
when the US defence budget is under enormous pressure. What is the budget situation likely to do to
America's national security?

KURT CAMPBELL: Well, look, I'm frankly much more worried about other aspects of our economy and our
federal budget than I am the defence budget.

I think if you look at the totality of what the United States has spent on defence over the course
of the last few decades, it's just daunting; and I've served in the Navy, I've worked in the
Pentagon. We spend more, generally speaking, on national security than the rest of the world
combined.

And so I'm not particularly worried that we're going to need to have a bake sale in order to keep
the Pentagon flush. We ...

ALI MOORE: No, but are you saying that if 700 billion, 800 billion is cut from US defence budget
you wouldn't feel it?

KURT CAMPBELL: No I'm not saying that.

First of all I don't think we're going to get in that circumstance. I believe that we'll be making
prudent cuts in virtually every aspect in federal spending over the course of the next decade. But
I believe there is the wisdom in both parties to ensure that any steps to trim the Pentagon budget
will be in areas that we often refer to as fat as opposed to lean muscle.

We recognise that maintaining a strong military, a robust national security apparatus is in the
best interests, not only of the United States, but all of our friends scattered globally, and
particularly in the Asia-Pacific region.

ALI MOORE: If we can go back to the debt issue; of course China holds over $1 trillion dollars
worth US Treasuries, and it's been highly critical of the debt crisis. The state media had accused
America of being addicted to debt.

How do you think the crisis is being played out in Asia? How do you think it's perceived? What do
the Chinese, and indeed the Japanese make of it?

KURT CAMPBELL: That's a great question, and indeed we were travelling with secretary of state
Clinton of a few weeks ago, after the ASEAN (Association of Southeast Asian Nations) international
forum, and she gave a major speech on economics in Hong Kong. And we'd written parts of it in
advance and as we were reviewing it the night before I think we recognised that too much of the
speech was sort of about Americans talking with Asians about steps that they might need to take.

When, indeed, the real message that Asians wanted to hear was that the United States understood the
nature of the risks and the stakes involved in what the United State was doing in terms of its
domestic debates about the budget and the debt limit.

I think it's going to be very important on the part of the United States to reflect clearly that
what happens in Washington in these occasionally quite bitter debates, not only have consequences
for the United States but globally.

And I think it's going to be very important that we demonstrate clearly that we understand our role
as a leader, what it means in terms not only of military engagement but our economic engagement
moving forward as well.

ALI MOORE: But you don't think that from China's perspective, in particular, that whole episode
highlighted the weakened polity, a political system that right now is really struggling to deliver
outcomes?

KURT CAMPBELL: Look, I understand that there are inevitable criticisms of how democracies function.
They can seem, the classic term, like sausage making; very out in the public and lots of back and
forth.

But the truth is I think that there is a lot of strength in that kind of system and the United
States has had occasionally incredibly intense political in-fighting from even before the republic
was founded. And I must say that is one of the things that Americans and Australians share,
politics is not for the faint of heart, I mean this is a contact sport, it's a mosh pit in both of
our countries. So I'm not ashamed of that, in fact I think that is a sign of our strength.

If you look at comparable challenges, which we don't like to highlight in a way that creates
awkwardness, but what has transpired in China in recent weeks with the crash of the train and the
immediate attempt to get some of those stories of the internet, or challenges in the western part
of the country.

Every country faces domestic challenges. It's how countries deal with them, and I think the United
States deal with them out in the public, I think we recognise some of the challenges, some of the
weaknesses of various approaches, and I think we seek to learn from those lessons. And I hope we've
done so in the recent context of the debt crisis.

ALI MOORE: Of course those huge numbers of purse strings that the Chinese hold, I mean, in the end
could there be geopolitical consequences for that; I mean it is an enormous amount of your debt in
Chinese hands?

KURT CAMPBELL: Look, I think the truth is that there is very substantial interdependence between
the United States and China. And it is also the case that both China and the United States
occasionally feels somewhat uncomfortable with that interdependence. But the truth is we are both
linked in the global economy.

If things happen that are bad for the United States they will also have negative consequences for
China and vice-versa. We are inextricably linked. And that's reality. In many respects I think
augers well for the United States and China learning to live with each other in the 21st Century.

ALI MOORE: And as you do learn to live with each other, how important is Australia in a, want to be
at least, middle power? How important do you see it as a broker for you?

KURT CAMPBELL: Well let me just say Australia is not a "want to be middle power." Australia is an
incredibly significant player in the Asia-Pacific region and is one of our best mates.

I will quite honestly tell you Americans generally enjoy talking, sometimes it's difficult for
Americans to listen. Australia has a way of interacting with Americans and the United States that
is deeply effective. And I don't know of any other country that punches so far above its weight and
has an ability to influence the way another country, like the United States, thinks about the
world.

You've seen it play out over decades. Whether it's a crisis in Indonesia, sculpting policy options
for China, how the United States should join regional architecture. At every juncture it has been
Australia quietly assisting, providing guidance, support suggestions about the way forward.

I think Australia plays an enormously effective role. Seeks to balance its own interests with the
interests of others. And I think plays a very powerful role in stating clearly that it sees a US
role in the Asian-Pacific region. A strong and vibrant one is also in their interests.

ALI MOORE: And if Kevin Rudd as prime minister thought in the same way as president Obama, I
believe was the way you put it at the time, does Julia Gillard as prime minister share that
characteristic?

KURT CAMPBELL: I believe she does. I have to say I'm in a position where when the president meets a
visiting leader I'm in the room, I get to see how the chemistry is, how that particular leader
conducts him or herself.

I have to say from my perspective, from our perspective Prime Minister Gillard had one of the most
effective meetings with president Obama I've ever seen. She was cool, she was confident, she
presented the interests of her nation in a very impressive way. She represented Australia very well
and I must tell you I think Australians should be very proud of how that played out.

I think, generally speaking, Australia's been blessed with very good leaders, on both sides of your
political aisle. And Prime Minister Gillard is absolutely no exception from that general
observation.

ALI MOORE: Kurt Campbell you are not a diplomat for nothing. Many thanks for joining Lateline
tonight.

KURT CAMPBELL: Thank you. It's been great to be with you, have a good evening.

Republican nomination race reaches first test

ALI MOORE, PRESENTER: The Republican race for the White House is about to see a shake up with Texas
governor Rick Perry confirming he'll enter the contest.

And Sarah Palin is about to arrive in Iowa as the candidates who have already declared face a tough
debate and a critical first ballot this weekend in Iowa this weekend.

From Iowa, North America corresondent Lisa Millar reports.

LISA MILLAR, REPORTER: For 10 days every August Iowa puts on a show. A million people are expected
to walk through the gates at the state fair. They've been coming for 150 years.

It's also a well-worn path for aspiring presidents.

MITT ROMNEY, REPUBLICAN CANDIDATE: I'm Mitt Romney. I'm running for president. You might consider
doing that.

LISA MILLAR: A frontrunner and biggest front runner, Mitt Romney was on a mission.

MITT ROMENY: Hello I'm Mitt Romney, I'm running for president.

LISA MILLAR: Iowa is the First State to vote in the presidential primaries next year. Every one of
these handshakes could make a difference.

ANDY LARSON, IOWA RESIDENT: All the candidates are practically tripping over themselves trying to
talk to you and earn your vote. It's interesting. It makes you feel sort of important at least
briefly. (Laughs)

LISA MILLAR: Newt Gingrich might be trailing in the opinion polls and his campaign team might have
deserted him, but he's still in the race and there are many people in Iowans still waiting to be
wooed.

What are you looking for in a Republican candidate?

SHERYL LARSON, IOWA RESIDENT: I don't know. I'm ... someone who can lead the country and is a
leader.

LISA MILLAR: This weekend the candidates compete in the traditionally important Ames straw poll.
It's a non binding ballot but it can be the make or break for many candidates.

Perhaps an indication of just how much attention is focused on Iowa over these few critical days is
the number of media passes that have been handed out, 700 this time. Two hundred more than when
this State went through the same process four years ago.

And it probably gives you a sense, also, of just how wide open this field is.

Mitt Romney might be the frontrunner but there are others who are racing to try and topple him from
that position.

Political scientist Diane Bystrom says voters seem to be unhappy with the current Republican
choices.

DIANE BYSTROM: They don't seem to be really focus on one candidate.

I mean Mitt Romney is the person to beat, he's leading in all the national polls, but yet he
doesn't seem to have, you know, a lot of excitement.

As I was telling youearlier I went to a luncheon today on what conservative voter care about and
felt there was really an undercurrent in the room that seemed to me fairly anti-Mitt Romney.

LISA MILLAR: There were high stakes in this debate. Candidates trying to land knockout blows and
keep their campaigns alive.

TIM PAWLENTY, REPUBLICAN CANDIDATE: If that's your view of effective leadership with results,
please stop because you're killing us.

MICHELE BACHMAN, REPUBLICAN CANDIDATE: That sounds a lot like more like Barack Obama if you ask me.
During my time ...

LISA MILLAR: And there were sharp words from Newt Gingrich towards the media.

NEWT GINGRICH, REPUBLICAN CANDIDATE: I'd love to see the rest of tonight's debate asking us about
what we would do to lead an America whose president has failed to lead instead of playing Mickey
Mouse games.

LISA MILLAR: It was the first debate for the US ambassador, John Huntsman, whose campaign has been
described as low key.

JIM HUNTSMAN, REPUBLICAN CANDIDTE: ... Definitely what it needs. When you look at me and you ask
what is that guy going to do, look at what I did as governor. That is exactly what I'm going to do.
And it's exactly what this country needs right now.

LISA MILLAR: The economy dominated the two hour debate.

RON PAUL, TEXAS CONGRESSMEAN: The country's bankrupt and nobody wanted to admit it.

JIM HUNTSMAN: Look I'm not going to eat Barack Obama's dog food. What he served up is not what I
would have done if I'd have been president of the United States.

LISA MILLAR: Two people not on stage who continue to feature in this campaign are Sarah Palin and
Rick Perry.

The Texas governor will shake up the race by officially entering this weekend.

The post debate spin room was in overdrive as advisers and supporters delivered their take on the
outcome.

There are six months until the first votes are cast, but the race has begun in earnest.

Lisa Millar, Lateline.

Evans overwhelmed by homecoming reception

ALI MOORE, PRESENTER: Tens of thousands of people packed central Melbourne today to welcome home
Tour de France winner Cadel Evans on his first trip home since winning the race.

The cyclist and his family say they're overwhelmed by the reaction of people in Australia.

Hamish Fitzsimmons reports.

HAMISH FITZSIMMONS, REPORTER: People were encouraged to come and yell for Cadel and they did, in
their thousands.

CADEL EVANS, TOUR DE FRANCE WINNER: Well I could say overwhelmed but that would be the
understatement of this month at least.

HAMISH FITZSIMMONS: Politicians were keen to show their support too. In person.

TED BAILLIEU, VICTORIAN PREMIER: In Australian sport there has never been a greater performance.

HAMISH FITZSIMMONS: Or on recorded message.

JULIA GILLARD PRIME MINISTER: On this day all Australians are paying tribute to your efforts.

HAMISH FITZSIMMONS: This is the Tour de France winner's first trip back to Australia since winning
the world's most prestigious road cycling race.

CADEL EVANS: I hope I can come back next year right.

HAMISH FITZSIMMONS: And it's fair to say not even he was expecting such a huge turnout.

CADEL EVANS: Someone told me at the start of the parade, wait til you get to Federation Square and
then you'll realise how big this really is. And it was kind of nice to hear Ted say "this is a much
bigger crowd than what Oprah had." (Laughs)

BRENDAN BAILEY, CYCLIST: Looking at all the people here, you know, it's great for cycling in
general and hopefully it will mean there's a lot more people out there on the roads and a few fewer
cars as well.

HAMISH FITZSIMMONS: One of the proudest people in the crowd was Cadel Evan's mother, who says his
family is his strength.

HELEN COCKS, CADEL EVANS' MOTHER: Knowing that you've got people behind you, that they are there no
matter what happens, it's really important and it gives you the mental strength, I suppose. You
don't have to worry about doing anything but doing the job that you need to do and getting on with
it.

HAMISH FITZSIMMONS: Cadel Evans' wife, Chiara Passerini, says they're surprised and honoured by the
attention.

CHIARA PASSERINI, CADEL EVANS' WIFE: We knew that people were telling us, look it's going to be
big, everyone is so excited, but for us it was like back to normality. So coming here it's really
overwhelming and we are so happy to be here right now.

HAMISH FITZSIMMONS: Organisers hoped there'd be a big crowd, but this appears to have exceeded
expectations. Now many of those involved, particularly Cadel Evans, are hoping it raised the
profile of cycling in Melbourne and in Australia.

CADEL EVANS: I hope that my efforts in some way, whether it encourages people to take up cycling as
a sport or young people, or something, I hope in some ways in some ways it brings about something
for future generations maybe.

HAMISH FITZSIMMONS: Australia's peak cycling body says Evans has already given the sport a huge
boost.

KLAUS MUELLER, PRESIDENT, CYCLING AUSTRALIA: The win by Cadel in the Tour is obviously very
inspirational for a lot of you riders coming through.

HAMISH FITZSIMMONS: Cadel Evans leaves Australia for the US tomorrow to race in the Tour of
Colarado and is humbled by the support.

CADEL EVANS: Everyone's been along for the ride with me and it's been great fun

HAMISH FITZSIMMONS: Hamish Fitzsimmons, Lateline.

Time for the weather. A shower or two for Sydney Adelaide and Perth. A possible shower in Brisbane,
partly cloudy in Melbourne, morning fog for Canberra and sunny in Darwin. That's all from us. If
you'd like to look back at tonight's interview with Kurt Campbell and James Shugg or review any of
Lateline's stories or transcripts you can visit our website. You can follow us on Twitter ore and
FaceBook. I'll see you on Monday. Enjoy your weekend.