Don't get me wrong: Minister expands on Spanish remark

Finance Minister Bill English. Photo / Mark Mitchell

A throwaway line by Finance Minister Bill English at yesterday's Mood of the Boardroom breakfast caused some ears to prick up.

He had recently been told something he wanted to follow up on: "A number of these Spanish banks have books that don't look a hell of a lot different to our banks. We need to find out whether that's the case," he said.

"We've come through this financial crisis better than most, mainly because our banks haven't collapsed."

The point of the anecdote, he explained later, is that while New Zealand banks have been very stable, so have others around the world.

"Our banks are still every dependent on borrowing in international markets and those markets are getting volatile and discriminating."

But whatever similarities there might be between Spanish banks books and ours, the fiscal positions of the two governments are very different.

Spain's fiscal deficit is 9.4 per cent of GDP and its gross government debt 73 per cent of GDP, against New Zealand's 3.7 per cent and 28 per cent respectively.

And New Zealand, unlike Spain, still has its own currency. "Our floating currency at this stage is a very substantial advantage for us. Otherwise we could be seen in quite a different light."

English said that when credit rating agencies appraised a country's vulnerability they looked not just at such metrics as debt levels and deficits but at the flexibility of its economy, the ability to "roll with the punches".

New Zealand's net external liabilities at almost 90 per cent of GDP are among the highest for a developed country. "But there are all sorts of offsetting factors."

Along similar lines ANZ has just updated its analysis of countries' vulnerabilities.

It looks at negative factors such as gross government debt, fiscal deficit, current account, gross external debt and unemployment rate, but also at offsetting factors like political stability, currency flexibility, measures of economic freedom, and size (population and per capita GDP).

Looking at the negative factors alone, New Zealand ranked 19th most vulnerable of the 39 countries listed, while Spain was third after Greece and Ireland.

When offsetting flexibility factors are added, New Zealand's ranking improved to 29th, between Sweden and Japan, but Spain was ranked second most vulnerable.

English said the Budget had been partly about getting the Government's share of the country's debt under control.

"But the bigger challenge is how we deal with the massive private appetite for debt."

He reiterated the preference for an incrementalist approach to reform. "The depth of the challenges means we will only meet them with considered and consistent changes over quite a period of time."