PM Key: Sense large Eurozone nations addressing structural problems, are very committed to euro, following talks with Germany's Merkel

By Alex Tarrant

There is a sense Eurozone countries are addressing their structural problems and are committed to keeping the embattled euro currency, Prime Minister John Key says.

Key has just returned to New Zealand from a week-long trip to Europe, where he met German Chancellor Angela Merkel to talk about the Eurozone crisis. The meeting between the two was just days before the Spanish government requested European assistance for its banking sector, which could turn into a bill of 100 billion euro.

Speaking on Radio New Zealand on Monday morning, Key said that, overall, "there was a sense that the countries [receiving assistance] are addressing their structural deficits and their structural problems.”

On Newstalk ZB, he said if Greek voters this weekend opted for pro-bailout parties, then Greece would find a way to "muddle-through" its problems.

On RadioLive, he said European leaders like Merkel, and French President Francois Hollande, would support troubled nations like Greece if they made structural changes to their economies to become more competitive.

Spanish banking crisis

Key said there was no doubt from his meetings that Eurozone leaders recognised there was a banking crisis in Spain. Key also met with British Prime Minister David Cameron, and Bank of England Governor Mervyn King on the trip.

“[There was a sense] overall that the Spanish economy was much more sound than some of the other economies – that their government was going in the right direction – but they essentially had a housing bubble, and that was having a dramatic impact on the banks," Key said on Radio NZ.

"I was very firmly of the view that they would do something to bail out those Spanish banks, simply because to not do so would have caused massive problems in Europe," he said.

Leaders were very committed to the euro, even though there were economic parts of the project which were driving odd consequences, or there were issues faced by individual countries which weren’t necessarily the easiest to resolve.

In terms of the individual countries facing problems, Greece had far too many debts and an uncompetitive economy. However, it only accounted for about 2% of the overall Eurozone GDP.

“The thing to remember here is, Greece is a very small part of the overall problem, although Greece’s individual problems are extremely significant for that country," Key said.

While Spain - which faced a banking crisis stemming from a housing bubble - and Italy were much bigger economies, they were also more competitive and faced different issues to Greece.

Committed

Leaders like Merkel and Hollande were committed to maintaining the eurozone, Key said on Newstalk ZB.

“The way to think about it is that when they talk about the euro, they literally talk about the European project. In other words, this is a work in progress, this is something that they don’t think is completed yet, and they are utterly committed to," Key said, pointing to the Spanish bank bailout as a sign of that commitment.

“And it is a very different perspective to the one that you get if you read the ‘Murdoch press,’ if you like, in the UK, which is totally and utterly opposed," he said.

“Everyone is uncertain about Greece. Bluntly, it’s got huge problems and on-going structural problems...where the country’s just simply not competitive.”

In Greece, a lot depended on what happened in this weekend’s elections. They follow a stalemate after elections on May 6, where none of the top three parties in Greece were able to form a government.

“If they vote for austerity, they’ll find a way to muddle through [their problems]. If they don’t, then my guess is that they’ll be gone [from the euro]," Key said.

In Greece, the incumbent socialist Pasok Party, and the conservative New Democracy Party, which have alternated in power since democracy was restored in 1974, are prepared to create a coalition government which would adhere to EU/IMF bailout conditions and stay in the eurozone.

The principal contender, the left wing coalition party Syriza, which came second in May's elections, wants to renegotiate bailout terms and conditions while keeping Greece in the euro currency block.

Germans want changes if they keep throwing in money

On RadioLive, Key said Germany had been a very big beneficiary of a highly competitive euro from their perspective. However, Germany was not just going to throw money at ongoing consumption in countries like Greece as it tried to save the Euro project.

“They’ll throw money at structural change, but you’re not going to get German taxpayers to constantly pay for the Greeks to retire at 55. You are going to get them to pay to make structural changes to their economy to get them to be more competitive," Key said.