Commiserations to our European Friends: AAA Rated Australia Strong and Getting Stronger

Commiserations to our friends and partners in the European Countries downgraded by Standard & Poor's (S&P) yesterday. Looking at it in perspective, I do note that S&P's statement includes the observation "the ratings on the eurozone sovereigns remain at comparatively high levels, with only three below investment grade

(Portugal, Cyprus, and Greece)."

I hope the downgrade leads to the reforms which will make those countries more resilient and robust in an ever more competitive global economy. My experience says it can be done. In 1991 the State of Victoria suffered a double downgrade of the State’s long-term credit rating to A1. This led to determined action by the Victorian Government to bring debt under control, balance the budget and communicate "the improving economy and credit of Victoria to rating agencies and investor groups, to enhance the State’s debt profile and improve funding costs." In April 1998, The State of Victoria was upgraded by S&P to AAA. The reforms took us to the forefront of global expertise in areas like regulatory efficiency, PPPs and competition in utilities.

The further European uncertainty should reinforce the plans of those thinking of investing in Australia to access Australian markets and as a base for Asia.

The state of the Australian economy stands in stark contrast to Europe. The burden of government debt is small. Australia's net public debt is forecast to peak at 8.9 per cent of gross domestic product (GDP) in 2011/12 in contrast to France's net position predicted to peak at 85 per cent of GDP and Austria at 54.1 per cent of GDP.

OECD forecasts predict Australia will have the fastest growth in the developed world in 2012: a rate of 4 per cent equaled only by Chile and approached only by Korea at 3.8 per cent.

Interesting Perspectives on the European downgrade:

• Times of India: "Regaining an AAA rating, a difficult but not impossible task." "Australia may be an even harder example to follow. S&P removed Australia's AAA in 1986 and only gave it back 17 years later. During that time Canberra adhered to strict budgetary discipline and even capped its debt, measured in Australian dollars, in 1997. It also benefited from rapid growth and a broad transformation of its economy, modernising its financial system and deregulating uncompetitive sectors. Meanwhile, demand from a resurgent China drove a boom in the Australian mining industry, providing more tax revenue for the government."