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Europe/Asia: Leaders Discuss Economic Crisis

  • Ben Partridge

London, 6 April 1998 (RFE/RL) -- The Asia-Europe summit, which closed in London on the weekend, was dominated by discussions on how to handle the economic crisis that has hit Japan and the so-called Asian "Tiger" economies over the past 12 months.

The three-day talks brought together leaders of the 15 EU countries and 10 of the most important Asian countries, including China and Japan, for the second session of the Asia-Europe Meeting (ASEM). The forum -- which first met in Bangkok two years ago -- aims to strengthen economic and investment ties between countries that together account for half the economic output of the world.

The atmosphere for the London talks was far more somber than at the inaugural session in 1996 when the Asian Tiger economies were booming, and Europe's priority was to cash in on their success.

Two years on, countries like Thailand, South Korea and Indonesia are grappling with the worst economic crises in their history, and they are looking for European (and U.S.) help to pull them out of their recent downward spiral.

Fears that the Asian crisis could drag the world into a recession deepened on the eve of the summit when it emerged that Japan, the world's second largest economy, faces grave problems of its own.

Alarm bells started ringing when Norio Ohga, head of the electronics giant, Sony, Japan's most famous corporation, warned last week that his country's economy was on the brink of collapse. In an unusually outspoken speech for a Japanese businessman, he said the economy is facing its most difficult time ever, a crisis reflected in stagnant consumer spending, plunging property prices, and the first contraction in gross domestic product in 23 years.

Economists say Japan's economy has been heading for a crisis since the government raised the sales tax on consumer goods last year at a time when Japan was still struggling to recover from a dramatic late 1980s crash in the price of shares, offices and homes.

The price hike further undermined the confidence of consumers, already weighed down by debts, demoralized by corruption scandals and shocked by the collapse of banks. They are refusing to spend money, and are saving it instead, causing companies, in turn, to cut their output, labor and capital spending. The collapse in currencies and asset prices in the rest of Asia have added to Japan's woes. Its exports to these countries have now fallen by half.

What to do? Japan's Prime Minister Ryutaro Hashimoto told the London summit that the Asian economies are fundamentally sound, and that the worst is over. He promised the 25 EU and Asian nations he would do whatever is needed to put Japan's economy in order.

But the assurance did not satisfy critics who say Japan is caught in a classic deflationary bind, a problem aggravated by excessive bureaucratic controls on the economy. The critics say Japan needs urgently to reflate its economy and stimulate domestic demand.

Some economists are advocating government spending on the model of the 'New Deal,' which U.S. President Franklin Roosevelt instituted in the 1930s, and which is seen by some as having been a crucial factor in America's recovery from the Great Depression.

The EU leaders at the London summit agreed to contribute a modest 25 million dollars to a technical trust fund aimed at helping the Asian countries restructure their economies, and to alleviate poverty. But the Asian countries, including Japan, complained that the EU has done comparatively little to help them out of their economic crises, despite the fact that the Europeans -- French and German banks particularly -- have a huge stake in the region.

The question posed by many analysts as the EU and Asian leaders packed their bags and headed for home was: Will the Japanese crisis have a ripple effect to the extent that it contributes to worldwide deflation and recession.