Australian researchers have put their minds to that thorniest of issues: the question of whether bananas from Western Australia taste better than produce from Queensland. Scientists at Curtin University discovered that four out of five people preferred the Western Australia banana. By happy coincidence, the Sweeter Banana Co-operative, the study’s sponsor, and Curtin University are both in Western Australia.
It is not all good news for growers in the Lucky Country though. In summer 2002 £1 would buy A$2.95; this year it buys A$1.55. The Aussie dollar has strengthened against sterling by 90 per cent in ten years. Against the US dollar – and by extension against many South East Asian currencies – it has gone up by 86 per cent. That ten-year upward march has coincided with a decade of drought.
Not only has the combination put a huge dent in export competitiveness, it has also made it more difficult for local producers to compete with cheaper imports.
While consumers are accustomed to cheap, reliable produce from overseas, it is not hard to find economists who believe the Aussie dollar is overvalued. They see a shaky housing market, weak business confidence and, according to readings from the Purchasing Managers Index, shrinking output. Defenders of the currency’s strength point to economic growth of 1.3 per cent in the first quarter of the year and a resilient jobs market.
Like its New Zealand counterpart, the Aussie dollar is about 7 per cent off its record high, but as yet there is no sign of it turning lower. What might change that picture are developments in Euroland. To take the extreme, apocalyptic view, the breakup of the single European currency could plunge the continent into another economic downturn that would spread beyond the eurozone’s borders to engulf the entire interconnected global system.
But the EU is not one to obsess about the ‘what ifs’ and ‘maybes’. The European Commission is busying itself with a public consultation on the future of the EU regime for fruit and vegetables. The deadline for ideas is 9 September.
Whether the euro as we know it will still exist by then has become a matter for heated debate. A political impasse in Greece and loan losses at Spanish banks make it conceivable that either or both countries could have been forced out of the single currency. The two issues are only loosely related but both have potential implications for the euro’s future – or lack thereof.
The general election re-run in mid-June almost inevitably means the ascendancy of anti-austerity clout in the Athens parliament. This could mean Greece reneging on its bailout commitments and Brussels retaliating by turning off the flow of money. Default and secession from the single currency could follow in short order. In Spain the bickering about how to recapitalise the country’s loss-making banks could exacerbate fears for their solvency and accelerate the flight of capital from the country.
Investors have become institutionally nervous about the euro crisis which, in one guise or another, has been festering now for more than four years. They might not be ready to write off the currency just yet, but they are preparing for the worst. Money has moved from Greece, Italy and Spain to Germany, where short-term government bonds yield zero per cent or less: it is not a matter of return on capital, but return of capital. Some of the hot money has gone into sterling, but a large chunk of it has found its way into the US dollar and Japanese yen.
The Eurogeddon story has been around for a while and, although it is not the only game in town, it is still by far the most important.
