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Saturday, September 28, 2002


An FT editorial muses over whether the combination of an over-reliance in the rest of the globe on US economic leadership, the unsustainability of current account deficits, the oil price consequences of conflict in the Middle East and the increasing fragility of emerging markets (particularly in Latin America) might all prove a bit too much to swallow, and hence speculates as to the likelihood or otherwise for an extension of Japan-style problems:

While the present uncertainty persists, finance ministers must tackle a much more immediate question. Avoiding Japan's fate is the objective but is it better to do everything possible now to keep economic expansion going and risk a bigger bust later, or to allow the imbalances that built up in the upswing to unwind more quickly and accept the consequences?

The problem is: the question cannot easily be answered because current economic conditions are unclear, let alone those in the future. The orthodox, and probably correct, view is: do everything possible to avoid a recession. Given the risks, interest rates should probably fall further. And in Europe, where imbalances are much less worrying, policy should certainly be relaxed. Is the European Central Bank listening? Or is it inclined, like the Bank of Japan, to blame others for Europe's woes?
Source: Financial Times

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