If the Japanese prime minister is correct, the real brawl at the G20 won’t be on the streets of London but inside the meeting rooms. While protestors are gearing up for marches and London is battening down the hatches, tensions between the G20 leaders are stretched tight, Taro Aso, Japan’s leader, told the FT in an interview published Wednesday.
Dismissing Germany’s warnings about the dangers of excessive public spending in the downturn, the ever-diplomatic Aso told the FT that Berlin had “failed to understand” why strong fiscal action was vital for recovery:“Because of the experience of the past 15 years, we know what is necessary, while countries like the US and European countries may be facing this sort of situation for the first time,” he said.
“I think there are countries that understand the importance of fiscal mobilisation and there are some other countries that do not – which is why, I believe, Germany has come up with their views.”
German chancellor Angela Merkel has cited Germany’s heavy public debt as a reason for caution on spending. But Japan – which, along with Germany and China, has been accused of contributing to global economic imbalances by running big structural trade surpluses – has far higher public debt levels. Its government liabilities are equivalent to more than 170 per cent of GDP.
Adding to the fun and games for G20 leaders behind closed doors this week, Nicolas Sarkozy, France’s president, reportedly threatened to walk away from the negotiating table if his demands are not met, reported the FT.
None of this sounds as though G20 leaders have paid much attention to Barack Obama’s call for a united front. In an interview with the FT published Monday, the US president expressed optimism that this week’s G20 summit would set the framework for recovery, saying that world leaders know they must “deliver a strong message of unity” for the sake of the global economy.
In London on Wednesday, Obama was again at pains to play down reports of tensions between leaders, telling reporters that their supposed disagreements were “vastly overstated” and were “at the margins.”
Whether he counts as a “margin dissenter” or not, Japan’s PM – not known for political or diplomatic skill (nor for economic savvy) – displayed rare good timing, not only firing a broadside at the reluctance of some G20 counterparts to embark on fiscal stimulus but unveiling on Tuesday what he claims will be a substantial new stimulus package.
Without putting a figure on it, he said the spending package for Japan would “mobilise all available means” to prevent the “floor” of the world’s second largest economy from “falling out”.
All this just as more bleak economic data emerged – on Tuesday figures showing rising unemployment and falling household spending, and on Wednesday, one of the grimmest results for the Bank of Japan’s quarterly tankan survey of business confidence.
According to the tankan, Japanese manufacturers’ confidence has suffered its sharpest decline in more than three decades amid plunging exports, slowing domestic demand and looming deflation.
The Tankan’s headline index for the mood of large manufacturers tumbled 34 points to minus 54 – surpassing even the 26-point plunge suffered during the 1973-74 oil shock when Japan shuddered under the impact of rising energy prices.
A steep fall had been widely expected and some analysts said it could mark the trough of confidence among big manufacturers. According to Richard Jerram, economist at Macquarie Securities in Japan, the “dreadful” result illustrated the shock to the economy from the recent collapse in exports and how it has flown into the domestic economy.
While noting that confidence may have hit the bottom, Jerram predicted more grim news saying the tankan’s forecasts for profits at large companies and investment in FY09 look “too optimistic”, while the expected 5.3% fall in capital spending (excluding land purchases) looks too small, and a double-digit drop seems more likely.
All of which gives the cheery Aso more ammunition to defend his massive public spending plans before his G20 counterparts and exhort them to follow Japan’s example. We’re sure the Merkels, Sarkozys and Browns of this world will all be very keen to take advice from the Japanese prime minister.
Related links:
London dresses down, protestors head to G20 marches – Bloomberg
Aso lays bare G20 splits – FT
Japan outlines new stimulus move – FT
Japan ready to take lead on aggressive stimulus plan - FT
Japanese business confidence at record low – FT