The Australian Government "does not understand the sovereign risk issue" and could be putting capital inflow into the economy at risk, ANZ chief executive Mike Smith said on Friday."Australia is a net importer of capital and capital goes where it is welcome," he said.Smith, who was addressing a Trans-Tasman Business Circle meeting in Sydney, made the remarks in answer to a question about the Government's rejection of the Singapore Exchange's A$8 billion bid for the Australian Securities Exchange.He said: "I am not privy to their information, so I can't argue on the specifics. But we have to work out how we want to engage with Asia."Protectionism is inevitable after an economic crisis. We have seen it in other countries."No one deal is going to make a difference to our reputation; it is when a number of these things come together. Any problem with offshore investors is more noise than reality now, but we have to be careful."Sovereign risk was top of mind for Smith, who said funding pressures on ANZ moved up and down with sovereign risk. "The Europeans will continue to surprise us with their incompetence. In the United States they have not had a government for some time."As a result, the bank had to "pick and choose" its moments to enter the capital markets. "We are now living in a world where no single country or bloc has the economic power or will to drive the global economic agenda."We are in a period of political and economic uncertainty and this will continue for some time."