During the ANZ annual general meeting, ANZ banking group chairman (ASX: ANZ) John Morschel warned that in spite of its fast recovery, the Australian economy will be highly sensitive to the debt struggles of Europe and US.

Although Morschel voiced anticipation on Australia and New Zealand’s continued growth, he cautioned that people are yet to see the last of the adverse effects of the global financial crisis.

He believes that economic recovery worldwide will remain “soft over the medium term” as the environment will “remain challenging to navigate."

Morschel also noted the deteriorating confidence of EU on the eurozone’s effectiveness as a political union and saw the need for European banks to “continue to shore up their balance sheets.”

Excluding Japan, ANZ projected 8 per cent growth in Asia in 2011, a far cry from its projection of less than 2.5 per cent in the US and Europe.

Morschel said that ANZ's expansion into Asia would position the bank well.

However, he claimed that the global financial crisis had jacked up the bank’s funding costs rendering it difficult for ANZ to balance commercial decisions with customer and community expectations.

Because of this, he cautioned that the public policy debate on banking competition could end up damaging to the country’s economy once it gets controlled by populism.