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Tuesday, February 25, 2003

Driving Without a Map

In this age of GPS and other electronic orientation systems, I keep having the slightly giddy feeling reading the economist that I'm a passenger in a car travelling at breakneck speed across unfamiliar terrain, but that the driver has no idea where he (or she) is going. Letting the comment from Yamaguchi pass without even a nod in the other direction. Isn't that the faux pas of the century. What we have are a shopping list of problems, but where, oh where, are our critical faculties.

One of the outgoing deputy governors of the central bank, Yutaka Yamaguchi, said in London last week that the worst of Japan’s deflation might be over. If Mr Yamaguchi’s assessment proves correct, Mr Fukui would have one less headache in the medium term. In the short term, though, it will not silence the critics who believe that more aggressive measures, using monetary and fiscal policy, are needed to tackle Japan’s problems.

Japan’s performance continues to be the weakest in the G7. But it is not the only country in a bad way, nor are its leaders alone in being confused about the appropriate policy response. Germany, in particular, is displaying the same lack of urgency in confronting its economic slowdown as Japanese policymakers have persistently shown. Europe’s largest economy is now once again teetering on the brink of recession. Its government has, as yet, signalled only weak commitment to much-needed structural reforms. And Germany, like France, is embroiled in a bitter dispute about fiscal policy. Both countries are in breach of the euro-area’s fiscal rules, or about to be. The European Central Bank (ECB) has, in the past, shown little enthusiasm for cutting interest rates to stimulate growth while the rules are being flouted.
Source: The Economist

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