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Pacific Perspective David McClain |
Japan on sidelines
at G8 meetSecurity was very much the name of the game at the recent Group of Eight meetings in Evian, France; and not only security from acts of terror, though that got plenty of attention, as did next steps after the Iraq War. The focus was also on economic security, on restarting the global growth engine that has stalled in the aftermath of the Internet bubble, 9/11 and now SARS.
The G8 was born in the mid-1970s as the G7, when leaders from the United States, Canada, the United Kingdom, France, Germany, Italy and Japan all came together to address the challenges presented by the first OPEC -- engineered oil price shock and subsequent global recession. Russia was added to the group in a more informal capacity as a goodwill gesture in the years after the fall of the Berlin Wall.
Over the last three decades, critics have derided these annual get-togethers as nothing more than photo opportunities. Still, the gatherings have grown into a useful tradition that expands the personal relationships among leaders, and one which, in recent years, has inspired protests by anti-globalization activists.
As is often the case, the United States has done the most recently to get its own economy moving again. The passage of another tax cut promises to boost business and consumer spending, though it will swell the deficit. And the Federal Reserve has signaled its willingness to cut interest rates further.
Meanwhile, the European Union members are constrained by the fiscal stability pact (which accompanied their adoption of a single currency in 1999) to limit any stimulus from lower taxes or increased government spending in their individual countries. And the European Central Bank has consistently lagged behind the Federal Reserve in its willingness to loosen the monetary reins, though it lowered rates late last week.
This confluence of cautious policies in Europe and more expansionary actions in America has resulted in a sharp appreciation of the euro against the dollar, helping US exporters sell more abroad but retarding European exports. Treasury Secretary John Snow's lukewarm enthusiasm for a strong dollar has accelerated this divisive trend, one reason why President Bush repudiated Snow's comments in Evian.
Japan has been rendered a spectator against the backdrop of this trans-Atlantic dialogue with interest rates near zero. It is caught in a liquidity trap, unable to do more to relax monetary policy. Fiscal policy in paralyzed by overspending excesses that have boosted the ratio of public debt to GDP to unsustainable levels. For the first time since 1999, another large bank (Resona) has required a government bailout to stay afloat. And SARS has crippled Japan's export market in China and the rest of Asia.
Japan's sideline status underscores the economic plight of the rest of Asia at this critical time. The regions' hopes for economic recovery have largely been reduced to a waiting game -- waiting for SARS to abate, waiting for the excesses of the Internet and telecom bubbles to be absorbed, and waiting for the latest fiscal and monetary actions taken by the non-Asian G8 members to bear fruit.
David McClain is dean and First Hawaiian Bank Distinguished Professor of Leadership and Management at the University of Hawaii College of Business. He also is interim vice president for research for the UH system. Reach him at mcclain@cba.hawaii.edu.