An economy that staggers in and out of recession. An inflation rate that is barely above zero. An ageing and falling population. It was inevitable, therefore, that IMF managing director Christine Lagarde should be asked: Is Europe the new Japan?
The answer from the IMF boss was that, yes, in some respects the eurozone was displaying some symptoms of “Japanification”. Her advice was that Europe should follow its own version of the three-arrow policy being pursued by Japan’s prime minister Shinzo Abe. Abenomics, as it is known, involves more monetary stimulus in the form of quantitative easing, more fiscal stimulus in the form of higher public spending, and structural reform to make the economy more efficient. Lagarde suggested a similar package could help Europe avoid the risk of recession, which the IMF puts at 40%.
“There is a serious risk of that [recession] happening,” she said. “But if the right policies are decided, if both surplus and deficit countries do what they have to do, it is avoidable.”
Poor economic data from Germany allowed finance ministers from outside the eurozone to pile on the pressure.
George Osborne said the slowdown across the Channel was affecting UK growth. Germany, though, was resisting pressure to run down its budget surplus to boost growth. German finance minister Wolfgang Schäuble said writing cheques was not the answer.
By the end of the week it was clear that the eurozone’s two biggest economies were at loggerheads, with France saying it would not reduce its budget deficit to hit the 3% target set by Brussels until Germany did more, and Berlin arguing that it was up to Paris to move first.
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