How did they get by? They used the easy credit of the banking system, thereby feeding

How did they get by? They used the easy credit of the banking system, thereby feeding the frenzy that ended in bad loans and meltdown. Keating's book has an abiding message for Australia: in the transformed world we "will find ourselves increasingly on our own" having to master our own destiny. The job is to rediscover the productivity and savings agenda of the 1990s. Why did Australia survive the 2008 financial crisis? "Because of the flexibility of the economy," Keating says. "Flexibility which came from the reform of Australia's financial, product and labour markets that began 25 years ago. This has given us one of the most flexible economies in the world - arguably the most flexible. But further structural changes are ahead of us." He lists them. It is a mix of the new and old Keating agenda: a shift in resources to the extractive industries; a lift in capital inflow driving a high current account deficit putting a premium on savings; recognition that competitiveness will lie "in the creativity of our people as much as it does in our oil and gas"; a renewed emphasis on the value of hi- tech and education; and above all, a cultural change that integrates Australia more into East Asia. "Cultural transformation is the key for us," Keating says. He rates it as more important than economic reform. “There is less interest now in being part of East Asia than there was in the 1990s," he laments. Keating wants this idea revived. And he ties it to the republic arguing that to succeed in Asia we must become a republic, a proposition Howard always dismissed. On China, Keating is an optimist yet alive to the daunting economic challenge China now confronts. "What is happening in China knows no precedence in world economic history," he says. "Never before have 1.25 billion people dragged themselves from poverty at such a pace. China is now half the GDP of the US and incomes have risen by a factor of 10." He argues, however, that the origin of the 2008 financial crisis lies in the global imbalances - China has built huge foreign exchange reserves by exporting too much and America, in turn, is saving too little. Keating says: "China must shift the basis of growth from net exports and investment to domestic consumption. Will they achieve this? Probably. Will there be strains along the way? There have to be." Unlike many Australian leaders, Keating is a Europhile. "I think the European project is the most significant project since the second world war," he says. But he sees two huge blunders made in Europe. From the euro's inception, Keating said it should constitute only Germany, France and the Benelux nations, not the peripheral countries around the Mediterranean, and "Greece should never have been allowed in". Why were the weaker economies given entry? HOUSE_OVERSIGHT_029668