Surely the ultimate humiliation for New Zealand would not be losing the Bledisloe Cup nor even seeing the Wallabies win the Rugby World Cup in 2011 at Eden Park but the bone jarring crunch of monetary union with Australia.

Recently smoke signals have been wafting from the Beehive as John Key and Kevin Rudd white flagged the issue in recent talks. When politicians say it’s a good idea but unlikely you know that it’s on the table. In fact this is not a new story. It comes up whenever there has been a proper meltdown and New Zealand looks a bit lonely and downbeat.

It’s been raised by some local economic commentators and all the usual pros and cons have been mentioned. Don Brash laid these all out nicely in a speech back in May 2000 and it’s hard to see past his conclusion that it is primarily a political decision, given that the economic pay off is unclear.

It may be a political decision then but it may not be a comfortable one. As Bernard Hickey writes today “we may not have a choice if we continue to borrow heavily”. The “shotgun wedding” wouldn’t be the most favourable outcome but NZ is not well placed at the moment. To coin a phrase you can’t be a little bit pregnant.

And, as Brian Gaynor writes, according to a recent OECD study, New Zealand is perilously close to Iceland in a ranking of countries with exposure to “overseas debt……personal debt and financial leverage”.The numbers are eye watering and the piper will be most surely paid at some point in time.

But, for now, the Australian banks, which make up most of our banking system, have underwritten us by sending new capital across the ditch. We also had to follow Australia’s deposit guarantee scheme with no choice in the matter. To all extents and purposes we are heavily dependent on them. So as Bernard notes we may find ourselves at the altar of currency union by default and not by political will. And it may happen sooner than we think.

Is there an alternative? Yes. A fully sovereign domestic money supply. More on that another time.

3 months a campaign was launched in the UK for a Post Bank to compete with high street lenders and provide a more democratic platform for banking. And now the Aussies are getting behind the same proposition. Dubbed the People’s Bank, it would be run through the network of Australia Post just as Kiwibank has done in New Zealand.

Initial reaction has been interesting with the government saying everything is fine and no need for any competition new competition or inquiry into the financial system for that matter. Well that’s what governments always say. In 5 years of corresponding with officials here in NZ I’ve never had a response that ever differs even when pointing out the finance company sector was going to collapse.

There has also been some commentary about not needing a government owned bank given the disasters of earlier years when many state owned banks collapsed. I enjoyed this quote from the Liberal Senator, George Brandis:

“In principle the opposition philosophically does not support government-owned enterprises unless there is a very clear case, for example, cases of market failure.”

Er yes.

Mostly the commentary has been at the fluffy level. Kiwibank has demonstrated that it is possible and can work well. I certainly have enjoyed their internet platform and found it way better than the big 4 banks. I like that government is backing it in terms of capital though it should be noted it operates as a stand alone SOE. Sam Knowles was quick to comment on the workability of the Kiwibank model in Australia.

So this is the opener in a debate that could take some time and hopefully focus on the real issues within the banking system namely who creates the credit.

Stay tuned.

The recent visit of the Saudi Arabian King Abudullah has caused no end of consternation amongst activists of all hue. Let’s face it the Kingdom is not exactly progressive when it comes to human rights or gender equality.

The famous “ethical foreign policy” of the Blair years, a deception like most other announcements of that time, is clearly is misnomer. The real question is can there ever be ethics in foreign policy?

Foreign policy is all about making sure ones national interest is enhanced, or at least not set back, by international events. As Mick Hume notes realpolitik is still the name of the game. Yes we will be enraged at hideous regimes but we have to consider our trade interests blah blah blah.

New Zealand tends to take the higher moral ground where possible but of course people would argue NZ is too small for anyone to notice. The stance of our neighbours across the ditch is somewhat different and maybe its because they have more to worry about with Indonesia to the North and as a bigger economy they interact more competitively with other interests in the region.

It’s an interesting dilemma. The Great Game continues and its hard to see when its going to stop. Until then expect ethics and morals to be trotted out only around election time.