Kevin Rudd dismisses European economic 'apocalypse' during AUKMIN talks in London

KEVIN Rudd has said concerns Europe's financial problems have been whipped up into "almost apocalyptic" predictions.

Kevin Rudd, William Hague

KEVIN Rudd has dismissed fears that Europe faces economic doom, saying that concerns about the continent's financial problems have wrongly been whipped up into "almost apocalyptic" predictions of European decline.

In an address to London's most prestigious think tank on foreign affairs, the Foreign Minister said a clear path was emerging for European economies to pull themselves out of the crisis surrounding sovereign debt and the Euro common currency.

"There is no point in talking up a funk about Europe," he said. "This continent has been through huge challenges in the past and there is a way through.

"I think there is a rational basis for optimism.

"From my own discussions with leaders in Brussels, Paris and London over the past week, in Europe there is now a serious, concerted and sophisticated effort to address the challenges that lie before it."

The rise of China and other new economic powers should not be seen as the death knell for either European or American economic and political influence, he told the Royal Institute of International Affairs.

Mr Rudd's optimism was a rare expression of confidence in the European economy from a foreign political figure and came as the IMF issued grim new forecasts that the 17-nation eurozone is heading for "a mild recession" this year that is already threatening the global economy and could easily get much worse.

In November, Opposition Leader Tony Abbott gave a more pessimistic analysis when he told a conservative think tank in London that he believed the Euro was unlikely to survive in its current shape.

"If this crisis is to have a lasting resolution it seems to me that there must be a way for adjustment within the eurozone," Mr Abbott said.

"Whether that means countries leaving the euro, whether that means countries adopting a different exchange rate within the euro, is really up to the European leaders to decide."

In contrast, Mr Rudd said a way forward was already emerging for the European financial system and common currency.

"Europe given its fundamental strengths which remain formidable should not talk itself into an early grave politically, economically, strategically or in terms of the core values for which this continent has stood for generations," he said.

"While recognising the dimensions of the challenge, it is crucial not to be sucked into a self-fulfilling vortex of despair and an irrational mindset setting in that there's no way through the current crisis."

"Europe is now grappling with the full dimensions of the crisis they face, including the future of European unity.

"The contours of a comprehensive European policy response are emerging," he said.

That rescue plan included a liquidity facility from the European Central Bank for European banks, European and IMF "firewalls" for the defence of government debts.

Tighter fiscal policies have been demanded and perhaps also the direct involvement of the ECB in backing sovereign debt, a controversial move which has so far been resisted by Germany.

A key ingredient to spur growth in Europe would be reform to competition policy, labour laws and pensions, "the first wave of which have already been announced in Italy," Mr Rudd said.

The reform promises of the new Prime Minister, Mario Monti, was "not a bad first effort," Mr Rudd said.

"So you can see the ingredients of a set of reforms that brings you through.

"There are two question marks in my mind. One is the growth strategy. These things are designed towards financial and fiscal consolidation but you have still got to generate growth, generate jobs, generate revenue and how is that done in a fiscally constrained world.

"There are policy levers there, with trade liberalisation, surplus countries consuming more and investing more than non-surplus countries and in the medium term productivity growth that comes off labour market reform.

"And the second caveat is how the resolution in Athens proceeds in terms of the quantum of the haircut that the banks agree to take in terms of Greece's sovereign debt problems."

It was fashionable to cast the decline of Europe as an inevitable result of the rise of Asia and China, "and on top of all of this, there are some who now question the medium to long-term viability of the European project itself including the future of European unity."

But Mr Rudd said pessimists should remember that Europe has many strengths, including the world's largest economy.

"Its GDP, in purchasing power parity terms, was estimated at US$14.8 trillion in 2010, with the US economy ranked second at US$14.7 trillion and China third on US$10 trillion."

The annual foreign investment of the top seven European nations in 2009 was "only a shade less than the FDI outflows of the US, Japan and China combined.

In that year the Euro area was the world's biggest exporter of goods and services and produced a third of all scientific publications, making it the largest scientific centre in the world.

Half of the world's biggest spending nations on research and development were European, as were 30 of the world's top 100 universities.

The European Union and its members also provided more than 56 per cent of the world's foreign aid and 43 percent of total non-US military expenditure.

"Before anyone reaches too many dramatic conclusions about the 'inevitability' of the decline and fall of Europe, it's worthwhile reflecting on these statistical realities," Mr Rudd said.