The shadow of another global recession hangs over the final leg of Prime Minister John Key's European trip, amid fears the eurozone crisis will escalate.
Mr Key is to meet Britain's Reserve Bank governor Sir Mervyn King today before leaving for Germany, where his talks with German Chancellor Angela Merkel will be dominated by the current crisis.
Ahead of a dinner with the British and Canadian prime ministers at 10 Downing St, Mr Key said the global economy was suffering from huge uncertainty.
"Our big problem would be ... if Europe goes, China could slow down, Australia would be very badly affected by the China slowdown and that's the nightmare scenario for us – a slowdown in China, our second-largest market, a slowdown in Australia, our largest market, a weak United States and we're in a diabolical position."
Finance ministers from the G7 group of developed countries have thrown their weight behind European "fiscal and financial union" to tackle the debt crisis threatening the eurozone.
British Prime Minister David Cameron is also due to fly to Berlin this week for talks with Mrs Merkel, as fears grow that the crisis could derail the global economy.
Mr Key said the fear was that if Greece was forced out of the eurozone, attention would turn to Spain, which was a much larger economy.
His meeting with Mr Cameron and Canadian Prime Minister Stephen Harper follows mass celebrations in Britain marking the Queen's Diamond Jubilee.
Mr Key and his wife, Bronagh, have been in Britain for most of the party.
The Cameron dinner represents the business end of the trip getting under way, but Mr Key said he expected it to be "a fun night" all the same.
"We all know each other pretty well; Bronagh knows Lorraine Harper very well and obviously I know David and Stephen extremely well."
Mr Key and Mr Cameron have been friends for a number of years but Mr Key acknowledged that he was unlikely to sway his British counterpart on a punitive departure tax which adds about $800 to the cost of a family flying from Britain to New Zealand.
The issue was to be raised over dinner and Mr Key and his officials were lobbying the British to adopt their proposed alternative, which would have seen the cost spread more evenly across departures to Europe and elsewhere, which have not been hit to the same extent.
Mr Key admitted that would be a difficult pill to swallow politically and New Zealand was fighting a losing battle.
But the rebuff was not expected to stand in the way of him extending an invitation to Mr Cameron to visit New Zealand – and tack on a trip to Antarctica.
Mr Key said Mr Cameron, who had already been to the North Pole, was likely to make the southern journey next year.
- © Fairfax NZ News
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