Story 1: Synopsis no.1 of Chapter1 "Radical Changes of World Economic Environment and Japan"
This first chapter of my book describes briefly radical changes of world economic environment in which Japanese economy is floating.
Among the issues which recently attract attention of observers of the world economy, problems of EURO zone are particularly visible. Fiscal and financial problems of EURO countries provide dark shadows and worrisome influences to the rest of the world.
After the painful struggles, both economically and politically, of Greece for the last few years in the wake of the discovery of the fake statement of the government fiscal report in the fall of 2009, EURO zone problems seemed at a time have been somewhat stabilized by orchestrated efforts of responsible EU member countries and IMF,and also somewhat successful launch of the new Italian government.
However, this effect was only short-lived. The result of the election of May of French president, and the repeated failure of Greece to organize a new government revived worrisome EURO zone problems again, which were reflected in downward swing of stock prices in stock exchange markets of many countries.
The new French president, M. Francois Hollande, claims that he will not endorse austerity policy package of EURO zone which was architected carefully by his predecessor M. Nicholas Sarkozy and German chancellor Ms. Angela Merkel. M. Hollande advocates that he will bring about economic growth and more employment opportunities. But how could he achieve such a goal is not clear at all particularly in view of the fact that French outstanding government debt is already 68% of GDP, and drastic increase of marginal income tax which will surely discourage the rich and hard working people. The market will surely respond to his self-contradictory economic package in the way of downgrading the French government bond. The political impasse of Greece also gives a bad signal to the market in the sense that Greek will not be able to improve their fiscal conditions. Again the market will react by downgrading Greek bonds further.
The downgrading of government bonds of troubled countries threaten the asset balance of financial organizations of EURO zone and other economies. The deterioration of asset balance will lead to shortage of liquidities and thus to credit crisis, and consequently shrinkage of affected economies and international economy.
The recent experiences of troubled EURO economies such as Greece, Italy, Spain etc provides implicit warning to Japanese fiscal policy. Japan's outstanding government debt amounts to 216% of GDP, much higher than 143% of Greece.
Why, Japan has not been regarded as the case of debt crisis or fiscal crisis? Some observers see that Japan has a much bigger leeway to rebuild fiscal balance since Japan' s consumption tax rate is still only 5% compared with 20~25% range of many EU countries. This means that international financial community thinks that Japan could restore fiscal balance by increasing the consumption tax to an European level if it is needed. This also implies that if Japan could not raise consumption tax rate substantively, then Japanese economy will be seen as a vulnerable case of debt crisis. And this is what drives prime minister Yoshihiko Noda and the ministry of finance to stick stubbornly to an increase of consumption tax rate up to 10% by October 2015.
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