English has eye on Eurozone as sovereign debt crisis moves to Italy; says NZ less vulnerable to crisis than it was

Finance Minister Bill English has his eye on the worsening situation in the Eurozone as the sovereign debt crisis there looks to be moving to Italy.

New Zealand was becoming less vulnerable to the Eurozone if there was to be a blow-up in the EU crisis, with policy makers here better understanding what needed to be in the 'tool kit' for if the crisis worsened, affecting New Zealand's funding lines.

Speaking to journalists in Parliament this morning, English said part of the reason for front-loading the government’s debt programme – borrowing more than it needed in the year ended June 30 in order to fund some of the next year’s expenditure – was that borrowing conditions had been favourable.

“And I think that decision’s been vindicated by the increasing nervousness in financial markets around the small European countries,” English said.

“We’ve been working to reduce both the government’s vulnerability to those markets, and the banks' vulnerabilities. The banks are certainly in a better position than they were two or three years ago. The government has been borrowing pretty rapidly over the last 12 months, which means that over the next couple of years we are dropping our average new borrowing to about NZ$100 million a week, when it was up at NZ$350 million-plus per week," he said.

"So we’re a bit less vulnerable than we were, and I think most governments know more about how these things work. So if anything goes significantly wrong in Europe, we know what the tool-kit is to help ourselves through a difficult patch.”

The government had taken a view that most developed countries had too much debt.

"And that issue hasn’t fundamentally been dealt with – they’ve just been shifting the debt around, rather than been writing it off or paying it off. And that’s the problem in Europe, is that it’s going to keep coming back until the debt is written off or paid off," English said.