Absent Obama held ransom - Key

Motorcyclists make their way through a street decorated with banners for the Apec meetings in Bali. Photo / AP

Prime Minister says US President would have added fizz to show but understands why he won't give in.

Prime Minister John Key says he can understand why United States President Barack Obama won't give in to the demands of Republicans who want to delay his healthcare law before passing the Federal budget.

Mr Key told the Herald he was disappointed that Mr Obama had had to cancel his trip to the Apec summit in Bali because of the US Government shutdown.

"At one level, he just adds a lot of fizz to the show."

But he agreed that Mr Obama was being held to ransom and that he should not give in to renegotiate a policy he had been re-elected on.

"You can't really give in because if he gives in, he is firstly giving in on a policy for which he campaigned, won the election and [was] re-elected.

"He's got a point, hasn't he, that he is being held to ransom.

"If he gives in now, what is he going to do in a month's time when he faces it again?"

It's unusual for leaders to comment on other countries' domestic issues but the US crisis is sparking wider concerns about financial stability if the impasse morphs into the debt-ceiling negotiations.

Negotiations between the US and the European Union on a free trade deal have been temporarily halted because of the shutdown. Mr Obama had been due to chair a meeting tomorrow on the sidelines of Apec of the 12 countries negotiating the Trans-Pacific Partnership.

Mr Key may also feel a certain empathy with President Obama given that Mr Key is facing strong opposition to his policy of part-sales of state-owned energy companies, on which he campaigned and was re-elected in 2011.

And despite Mr Key's National Party being more aligned to the Republicans than Mr Obama's Democrats, he sees the influence of the Tea Party as damaging to the Republicans.

"It's hugely problematic for them. You've got an element of the party that is under the control of the Tea Party, and always at the fringes of politics what you get is more extreme views and less compromise. I can't see how that [would] help the Republicans in the polls."

Finance Minister and Deputy Prime Minister Bill English told the Herald he did not see many wider impacts of the shutdown.

But the possible combination of the shutdown and the debt ceiling argument "is a real threat to financial stability", he said.

"The shutdown on its own, not too bad."

Mr English leaves today to attend the annual meeting of the IMF and World Bank in Washington, where he is likely to get a greater feel for the potential ramifications of the issue.

He said the risks to financial stability were one of the reasons the Government and the Reserve Bank spent so much time on the resilience of the New Zealand financial system.

"It is only five years ago that we had the combination of a runaway housing market with growing household debt internally, dependent on being able to borrow from stable financial markets offshore."

Some of those conditions were appearing again in the form of a fast-growing housing market and there were also risks.

"Internationally you've got the shutdown risk, the debt ceiling risk, you've got the Chinese credit risk, European banks haven't been cleaned up and central banks are trying to work out how to get off the drug of printing money.

"So we need to keep focusing on ensuring our household debt doesn't get out of control, that our banks are strong, and that we are reducing our dependence on the markets, the financial markets that are subject to those risks."

The numbers

*1 Occasion that New Zealand has hosted Apec. It was in September 1999.
*2 Day event starts today in Bali.
*21 Member economies from the Asia-Pacific region
*24 Years old. It met for the first time in Canberra in 1989.

Apec's heavy hitters

Susilo Bambang Yudhoyono (Indonesia)
Highly respected host. Nearing the end of his second and final five-year term as President of the world's largest Muslim country. A really big fish in Asean, less so in Apec.

Xi Jinping (China)
His first Apec as President of China since being confirmed in March this year. In the absence of US President Barack Obama, the Apec heavyweight. Inherited renewed tensions with Japan, the Philippines and Vietnam over claims to South China Sea territory.

Shinzo Abe (Japan)
The second Apec for the Japanese Prime Minister but a vastly different landscape from his first outing in Sydney in 2006 in a short-lived and failed premiership. This time Japan's economy is on the rise.

Park Geun-Hye (South Korea)
Her first Apec summit after being elected in February, Korea's first woman President. She may use Apec to signal Korea's desire to join TPP.

Vladimir Putin (Russia)
Could be forgiven for swag gering in after diplomatic coups over the Syrian crisis but may face heat over charging 30 Greenpeace Arctic activists with piracy. Turns 61 tomorrow.