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DERMOT MURNAGHAN: World leaders are heading home from Davos after a week dominated of course by the eurozone crisis. The IMF boss, Christine Lagard, warned that inappropriate spending cuts could strangle growth prospects. Our economics editor, Ed Conway, spoke to the former Australian Prime Minister, Kevin Rudd, who is now of course Foreign Minister. Here’s his interview.

ED CONWAY: Can you tell us your sense of the mood here?

KEVIN RUDD: In terms of Europe I think the mood is one of what I’d describe as small o optimism. I think when people gathered here at the beginning of the week it was capital P pessimism but I think as people have come to grips with the dimensions of the European policy response on firewalls, on fiscal compacts, on the reform programmes and the excellent work done so far by the ECB, people can track a way through this, of course depending on political will.

ED CONWAY: Where do you see … I mean Australia has been one of the most resilient economies over the past year during the crisis, are you seeing the impact now of the eurozone crisis on your economy and your country?

KEVIN RUDD: Well we do see a slackening of demand somewhat across Asia. Mind you, in the performance across the year I still think we’ll see a strong outcome from China which does underpin so much of our region’s economic growth, but let’s be very frank about it, if Europe is going bad, it affects global demand and therefore markets in our part of the world secondly. Europe is a huge source of global capital investment and if banks are contracting finance to repair their balance sheets in Europe, it’s less investment out there and frankly the growth zone of the 21^st century. Then there’s that great subjective thing called confidence, that thing which causes people either to hold back or go forward.

ED CONWAY: But with that strength, are you prepared to provide more money to the International Monetary Fund? Of course Christine Lagard is here asking for more resources for the fund, is Australia ready to provide more resources beyond the extra amounts you have committed to previously?

KEVIN RUDD: Yes and the reason we say yes is we believe it is part of our global responsibility. We have made that clear in statements in recent weeks. I think all countries need to rise to that challenge but the thing about an effective global firewall, as it is with an effective European firewall, is if it is effective it’s never called up. It’s actually getting to that threshold where there is sufficient confidence in the ultimate underpinnings of the private financial systems and therefore the sovereign debt arrangements within countries, that the firewalls are precisely that, they prevent the fire.

ED CONWAY: But do you think the UK should be providing more? Actually you said everyone needs to provide more but the UK is still prevaricating about whether to do that.

KEVIN RUDD: Well national governments will make their own decisions but do you know something, we are in a rolling financial crisis. It began as a problem with sub-prime in the United States and the domestic mortgage market there back in 07/08, about the time I was elected Prime Minister – always a timing problem when you come to office – and I’ve been living with this thing in one capacity or another ever since, but the financial crisis then was located in the United States, we then saw Lehman’s collapse and the other failures in the United States. Now the centre of gravity of the crisis is here in Europe and off the back of sovereign debt arising from sovereigns taking onto their shoulders the problems of the private banking system through guarantees etc. But where will the next centre of the crisis be? Well we hope there won’t be another centre of the crisis but that goes back to the core question, do we have our global financial institutions policy ready and sufficiently financially empowered to deal with shakes to the system when they arise? That’s why I think we have all got a collective self-interest, it’s not solidarity as the Europeans often say, it’s collective self-interest.

ED CONWAY: In that case, is it damaging for countries to say that they won’t provide cash unless they are very specific?

KEVIN RUDD: Well again I won’t tell the government of her Britannic Majesty’s Realm how to run the exchequer and what they do with the IMF, they’ll sort that out with Christine Lagard themselves but I think for all governments it’s important that we defend and sustain and strengthen the global institutions and the IMF is one of them, it’s part of the Bretton Woods arrangements, it’s designed for this sort of thing. We’ve got to make it work.

DERMOT MURNAGHAN: The Australian Foreign Minister, Kevin Rudd, talking to our Economics Editor, Ed Conway.