Economic Outlook: Is Europe the new Japan?

By ANTHONY HALL, United Press International  |  May 22, 2012 at 10:30 AM
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What if Europe turned out to be the new Japan?

The Japanese economy foundered for a decade, stuck in a time warp called "stagnation" after a recession hit in the early 1990s. The Tokyo government could not buy its way out of the mess, depleting every last available yen it could on stimulus programs over the years.

But this week, the Organization of Cooperation and Development warned that the European economy could be in trouble for much longer than previously thought.

OECD Chief Economist Pier Carlo Padoan said Europe could be headed toward "a vicious circle, involving high and rising sovereign indebtedness, weak banking systems, excessive fiscal consolidation and lower growth."

The OECD predicted that Europe's economy would contract by 0.1 percent in 2012 and grow 0.9 percent in 2013. In its previous forecast, the OECD said Europe's gross domestic product would grow by 0.2 percent this year and 1.4 percent in 2013.

Meanwhile, newly elected French President Francois Hollande has pledged to push for a euro bond, taking the debate first to German Chancellor Angela Merkel, who is the poster child for tough austerity measures and fiscal discipline.

While Hollande pushes for the euro bond, leaders in Greece are loudly backing any anti-austerity program it can find. A euro bond might be just the ticket for that, they say.

In Athens, The New York Times reported, leftist leader Alexis Tsipras recently said, "Hollande knows he can't renege on his promises very easily because if he does he'll become Hollandreou and follow the road that led to what we see happening now in Greece."

"Hollandreou" is a play on words, one part Hollande and one part Papandreou, referring to George Papandreou, the former prime minister of Greece who ran for office on an anti-austerity platform, which he later abandoned in favor of massive bailouts.

British Chancellor of the Exchequer George Osborne, meanwhile, said the British government was working on "contingency" plans for how to react should Greece leave the eurozone.

Other nations need contingency plans, too. Like what to do if it takes another decade or more for Europe to get back on its feet.

In international markets Tuesday, the Nikkei 225 index in Japan added 1.1 percent, while the Shanghai composite index in China gained 1.07 percent. The Hang Seng index in Hong Kong rose 0.62 percent, while the Sensex in India fell 0.97 percent.

The S&P/ASX 200 in Australia rose 1.16 percent.

In midday trading in Europe, the FTSE 100 index in Britain gained 1.26 percent, while the DAX 30 in Germany rose 1.04 percent. The CAC 40 in France added 1.22 percent, while the Stoxx Europe 600 grew 1.27 percent.

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