Eurozone should look at its partner on the East and start planning for a proper stimulus package that will convince everyone of its sincerity for wanting change.
Japan And The World Crisis
Looking back at Japan’s economic history, it would seem that the country and its people have created a system of finance and economic spending that is fail proof. As a member of the Group of Eight, Japan has managed to keep its GDP expenditure to an all-time high, without risk of crashing its economy or undertaking enormous public debt.
In today’s standards, Japan’s economy remains the third largest according to nominal GDP, with the United States and China leading sitting in the first two spots. It is also the world’s second largest economy. The fact is that Japan spends most of its funds into fields that it is sure it has the professional labor for. For example, due to the rising levels of competition of manufacturers from China and South Korea, Japan decides to dedicate its skilled labor force into creating specialized products such as robotics and the hybrid car.
The new economic plan implemented by Japan’s Prime Minister, Shinzo Abe, is setting Japan on a right course which will potentially see the country eliminating almost two decades of stagnant growth. Perhaps this is the sort of strategy which the Eurozone could implement as well. With the Eurozone inflation looming right around the corner, many economists and financial analysts predict that the current sinking consumer prices index will continue to plummet unless the European Central Bank reduces its tight grip on credit conditions.
Despite the central bank cutting its headline interest rate to a low 0.5%, declines have still persisted which indicates weak demand and an even bigger need for a stimulus package to kick start the economy yet again.
So what can we learn from Japan’s economic success in the first quarter of the year? While Shinzo Abe did propose that there were to be two tax increases to be implemented in the future, raising from 5% to 8% tax in April 2014 and then to 10% by October 2015, it was clearly stated that these tax increases will only be implemented based on the economic conditions of the country in that time.
Japan’s economy evidently grew to 0.9% which beat expectations of it only achieving 0.7% growth. This marks a new generation of households that are slowly but surely gaining confidence towards the government, with an increase in household consumption and net exports. Ironically, despite many saying that the planned tax increases are necessary evils to promote economic growth for the country in the future, it has many more short term benefits which have been overlooked. Though there are fears that the planned tax hikes in the mid 2014 onwards will put the country into a recession which it has been desperately trying to claw itself out of in the first place.
So the Eurozone should look at its partner on the East and start planning for a proper stimulus package that will convince everyone of its sincerity for wanting change. If no real effort is put forth by any country or government, then the current crisis will never resolved.
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