Cabinet has been told by the Foreign Affairs Minister he'll make cuts in his departments now, but he wants an increased budget in a couple of years.
Murray McCully's confirmed our Stockholm embassy is to close and about $10 million will be saved by slashing costs in Europe.
He says staff will be consulted in coming days about where the rest of the $24 million in savings is to come from.
But he insists the cost-cutting measures are only for the short term.
"By about 2014, with our trade and economic interests growing in Asia and the Middle East and Africa, we're going to need to think about spending some more on the network we have internationally, but for now I think that it's appropriate we should take the economising measures."
He says there's no secret we're looking very hard at areas like China, which is our second biggest trade relationship.
But Labour MP Phil Goff says that's a dangerous move.
"Europe is our third largest export market, it's a wealthy market.
"Downgrading Europe at the very time we're trying to negotiate a trade preference agreement with them, sends the wrong signal."
Mr McCully says he still wants our presence felt around the world.
He says for example we have a Wellington-based ambassador accredited to Ethiopia and the African Union, while in Kabul we share costs with the British embassy.
"So we're trialling all those things to try and work out how our diplomatic footprint can be made more economical in this century where we have different forms of communication and somewhat more flexibility about the way we operate."
Photo: Murray McCully (Getty Images)