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PM - Long term uncertainty in the world's markets
[This is the print version of story http://www.abc.net.au/pm/content/2003/s813263.htm]
PM - Friday, 21 March , 2003 18:55:00
Reporter: Stephen Long
MARK COLVIN: And now to the economic or financial
consequences of the war. A leading economist is warning of long term
uncertainties in the world's markets. Former Zurich group chief economist
David Hale advises major corporations across the globe. He says investors
giddy on the prospect of a decisive victory should look to the longer
term.
David Hale spoke from Chicago to Finance Correspondent Stephen Long.
DAVID HALE: It's very clear that investors think that the US will achieve a replay of the great military victory that occured 12 years ago when American forces devasted Iraqi forces and liberated Kuwait after only two or three weeks of warfare. The great difference with that period is on three fronts.
First, in contrast to 12 years ago there is a very significant risk that there might be a terrorist counter-attack on the United States, an attempt to blow up an aeroplane or attack an office building or some other centre.
Secondly, we have great divisions in the western alliance on this war, whereas 12 years ago we had a very unified western alliance and its unknown what the consequences will be of these divisions.
Will Germany and France now have conflicts with the US over trade policy, over aspects of security policy, we just don't know. Well I can tell you that French officials have already told me in the last few days that they now plan to exclude Tony Blair from any major European decisions.
STEPHEN LONG: So this could really impact on any attempts to form multi-lateral trade agreements and continue the path of economic liberalisation on the trade front?
DAVID HALE: The answer is we don't know. We just can't predict exactly what the consequences will be. Clearly, this has been a major breach and we don't know whether the countries involved will move quickly to iron it over or whether in fact it will fester and ferment other problems.
The final area of risk is quite simple. We don't quite know when the fighting will end. Last time, the goal was very clear. Evict Iraq from Kuwait, that was done in two or three weeks. This time the goal was the occupation of Iraq and regime change.
There is no doubt the American forces can defeat the Iraqi forces in a few days and weeks, but there could be ongoing insurgency for a long time. There could be terrorist attacks on US forces, an even akin to what we had in Lebanon twenty years ago when one terrorist in a truck killed two hundred US troops.
There could be other forms of insurgency. We just don't know. This time we're occupying a country, we're not just liberating a country. And that always has unknown consequences and clearly if there is great resistance the cost of the war will increase.
And that in turn will have consequences for the US budget deficet, the US current account deficet, it might cause the Congress to scuttle the whole Bush tax cut program. So there's all kinds of secondary and tertiary consequences of this conflict that we just can't predict very precisely.
And what that means is there could be a great stock market rally for the first few days, then investors might reconsider in 10 or 20 days time if they think there will be other long term consequences which are potentially more negative.
MARK COLVIN: Leading world economist David Hale talking to Stephen Long.
David Hale spoke from Chicago to Finance Correspondent Stephen Long.
DAVID HALE: It's very clear that investors think that the US will achieve a replay of the great military victory that occured 12 years ago when American forces devasted Iraqi forces and liberated Kuwait after only two or three weeks of warfare. The great difference with that period is on three fronts.
First, in contrast to 12 years ago there is a very significant risk that there might be a terrorist counter-attack on the United States, an attempt to blow up an aeroplane or attack an office building or some other centre.
Secondly, we have great divisions in the western alliance on this war, whereas 12 years ago we had a very unified western alliance and its unknown what the consequences will be of these divisions.
Will Germany and France now have conflicts with the US over trade policy, over aspects of security policy, we just don't know. Well I can tell you that French officials have already told me in the last few days that they now plan to exclude Tony Blair from any major European decisions.
STEPHEN LONG: So this could really impact on any attempts to form multi-lateral trade agreements and continue the path of economic liberalisation on the trade front?
DAVID HALE: The answer is we don't know. We just can't predict exactly what the consequences will be. Clearly, this has been a major breach and we don't know whether the countries involved will move quickly to iron it over or whether in fact it will fester and ferment other problems.
The final area of risk is quite simple. We don't quite know when the fighting will end. Last time, the goal was very clear. Evict Iraq from Kuwait, that was done in two or three weeks. This time the goal was the occupation of Iraq and regime change.
There is no doubt the American forces can defeat the Iraqi forces in a few days and weeks, but there could be ongoing insurgency for a long time. There could be terrorist attacks on US forces, an even akin to what we had in Lebanon twenty years ago when one terrorist in a truck killed two hundred US troops.
There could be other forms of insurgency. We just don't know. This time we're occupying a country, we're not just liberating a country. And that always has unknown consequences and clearly if there is great resistance the cost of the war will increase.
And that in turn will have consequences for the US budget deficet, the US current account deficet, it might cause the Congress to scuttle the whole Bush tax cut program. So there's all kinds of secondary and tertiary consequences of this conflict that we just can't predict very precisely.
And what that means is there could be a great stock market rally for the first few days, then investors might reconsider in 10 or 20 days time if they think there will be other long term consequences which are potentially more negative.
MARK COLVIN: Leading world economist David Hale talking to Stephen Long.
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