Is Europe the next Japan?


Active member
It's interesting travelling across Europe and seeing how one by one each of the economies is stagnating.

In the thirst for monetary union the stability pact has created a counter productive framework for growth and slowly but surely each country is grinding to a halt (in growth terms).

Germany is surely the most severe problem and reforms are taking time to push through let along have any effect.

And yet we sit here in the UK apparantly headed down the same road as the EU.

Recent measures to change our targetted inflation rate to match that of the EU is surely economic madness. How we can exclude the main cost of living from our calculations for inflation is totally beyond me. I have watched Ireland and the impact it has had there but still the jury is out on the Irish experiment.

Despite the warning signs EU policy seems stuck in a maliase worse than that which Japan had before it plunged into its modern dark age. At least Japan reacted quicker when they realised the issues they face. EU policy makers appear to beileve that this will not happen to them and that creeping policy is the best advance.

Meanwhile UK appears to break all rules on entry while at the same time attempting to fudge others.

If you ask me its all a bit of a mess and one that UK and EU will have to pay for, for many years.
Interesting observation Scrip. I'm not sure whether my memory is playing tricks, but wasn't it the case that the second and most serious dip in Japan was largely blamed on a sudden increase in long dated bond yields about 3 - 4 years into their bear market in about 1993?

It is of course unthinkable that there should be a sudden increase in bond yields in the West at a similar time from the market peak.
Hi Scripophilist

I believe the UK is breaking the boom bust cycle, and the Labour party and Bank of England have done great in stabilizing everything.....however Germany is dragging European economies down with them :(

The only comfort I can take in this fiasco is something that was said in the tv program "Yes Prime Minister" which went

the only reason we are in Europe is to split it up from the inside. You can't split something apart if your on the outside


How they think they can have a one size fits all EU economic policy is beyond me. We can't even cope with the north / south divide - and we're in the same country.

My answer...get out of Europe and become part of the USA :)
Well the jump in yeilds has throttled the housing remortgaging market in the US for sure.

The trouble with Economics is that it is an art not a science I think general trends are relatively easy to spot but the beast that is an economy just sort of lumbers around and often wakes up with a start. Events like 9/11 can de-stabilise any forecast. I like to know though that we are heading roughly in the right direction.

I expect that if interest rates fall or rise they will have nasty implications. Neither of which are conducive to holding assets. I much prefer the situation that we saw in the early 80's. Things just couldn't get much worse and interest rates were high. Plenty of room for assets to rise in value.
"I believe the UK is breaking the boom bust cycle, and the Labour party and Bank of England have done great in stabilizing everything....."

I'm not so sure, having been through at least three business cycles I don't believe policy can totally determine or outthink everything. I remain to be convinced.

I believe the current cycle was abnormally shallow probably due to two things, mortgaging our future for the sake of having somewhere to live and also the massive public sector spending. Both of which are uneconomic and will require big payback from future generations.

I'd prefer to have less debt in the economy so as to create a better basis on which to build stability. I belive all the current administration has done is passed that problem to a future one!!
The Govt is getting away with a poor economy at the moment. They've spent the savings with nothing to show.
Nobody has noticed because they're all out spending someone else's money.
The Govt as in the UK ? Well I dont think the UK is the next Japan. Europe being the next Japan will depend on the aftermath of the German economy finally imploding. The Germans are worse than the US right now. Europe may sucumb due to being unable to avoid a wider problem.

There is another reason why Japan has suffered so badly and it is to do with their own culture and how they react to poor economic news.

The Japanese generally only buy Japanese goods and this is not the case for Europeans. So when they found their economy faultering they all stopped spending because they were worried about job security which in turn fuelled the economic problem to even greater depths. This was because the goods being manufactured for consumption in Japan were not being bought by the Japanese which in turn meant poorer company performance and less job security so less spending by the consumer etc

The US has, in the past, managed to spend its way out of recession and although Europeans are not as likely to do exactly the same they are also not likely to take the Japanese approach either. The most likely scenario is somewhere between the two so we will see some economic recession but not as bad as Japan.

I know this is a simplistic view but culture does play a large role in economic performance

tend to agree with you on that.The big problem as I see it though is have the US consumers got anything left to spend.Today's re fi numbers were poor,and it is housing which has carried the economies in US as well as UK.
The FED will try and inflate away all this debt by printing dollars...but in effect it's pushing up bond yields,making debt more expensive....they talk about deflation,then inflation,whatever they believe the market wants to hear.
The debt in US is not being used to create growth ....$1 of debt is not being used constructively to make $1.10,it's just vanishing into money heaven on other debt.
All makes for a big mess further down the line...