Japan’s Shinzo Abe began his three economic arrow campaign–intended to rescue his country from a quarter-century of economic malaise, shortly after taking office in December 2012.
The arrows consisted in:
–sharp depreciation of the currency
–massive deficit spending, and
–supposed structural reform of a highly government-protected and increasingly inefficient industrial base.
I’ve thought from the outset that Mr. Abe would not be able to muster the political courage/clout to fire a meaningful third arrow. Unfortunately, this has proven to be the case so far. As a result, the “arrows” have given a huge economic gift to the entrenched industries of yesterday that dot the Japanese landscape, at the cost of lowering the living standards of the average Japanese citizen and a massive decrease in national wealth.
Demographically, the EU resembles the Japan of ten or fifteen years ago. Each member country has a profound belief in its own exceptionalism that derives from its geographical and cultural heritage. Economically, Europe has also seen a generation of political/cultural elites staunchly defending the status quo, lining their own pockets while living standards for the average citizen deteriorate and the industrial/financial national wealth is frittered away.
The easy comment–one I’ve made a number of times–is that the EU, and more specifically Continental Europe, is a new instance of the Japanese disease slowly starting to unfold.
However, though the heavy betting has to be that the Continent will follow down the same path blazed by Japan, could the economic result be different from that of the Land of Wa?
–For one thing, Europe has the fate of Japan as a cautionary tale.
–Europe also has the example/leadership of Germany.
–Organized labor is a distinct political force in Europe, rather than simply an arm of management, as in the case in Japan. This can present its own set of problems, but at least there’s a voice at the bargaining table demanding that increased profits be shared with workers.
–The least well-functioning parts of Europe have already substantially reformed themselves once in the recent past, when they vied for entry into the euro–although admittedly backsliding occurred almost instantaneously after admission.
I think the place to look for signs of deviation from the Japan road map is Italy, where Prime Minister Renzi is attempting to make basic economic improvements.
I think there’s at least a short-term opportunity to profit from holding European multinationals. Whether this is simply a “trade,” meaning we have to be seriously looking to exit in maybe a year, or more than this will depend on Europe’s ability to break the grip of the status quo. Watch Italy.