Wolf Richter www.testosteronepit.com
There are certainly some things that Japan can lecture France on, for example standing in line quietly without pushing and shoving and trying to get ahead. Lines in Japan are a display of communal discipline. In France, a line is something to be worked actively. They have an expression for it, faire la queue, to “do the line,” though in recent years French lines have lost some of their edge. Japan can also lecture France on designing and making cars and electronics, though fewer and fewer cars and electronics are actually manufactured in Japan as the country is deindustrializing; blame electricity shortages, the strong yen, and cost factors.
But nuclear safety, for example, wouldn't be a topic Japan could include in its sermon to France, given what now appears to have been its preventable nuclear disaster at Fukushima Number One. For an awesome series of maps that show Japan’s contamination as seen by people in Japan, TEPCO, the government, and people outside Japan, in a tongue-in-cheek way, check out.... Nuclear Contamination As Seen By Japanese Humor.
And most certainly, the other topic that Japan can’t include in its sermon to France is fiscal discipline. And yet, that’s exactly what Finance Minister Jun Azumi just did.
The Japanese fiscal quagmire has no peers among developed nations—by March 2013, the end of the current fiscal year, gross national debt will surpass one quadrillion yen, or $14 trillion, a mind-boggling 240% of GDP.
In France, gross national debt is 86% of GDP.
The Japanese government will have to borrow an astounding 56% of its expenditures (much of it to be printed by the Bank of Japan). The BoJ has been pursuing a zero interest rate policy for years, and yet interest expense on the debt is eating up 52% of tax revenues. So, to fix the problem—which can’t be fixed anymore—the government is trying to raise the sales tax from 5% to 8% by 2014 and to 10% by 2015, which has turned into a life-and-death struggle for Prime Minister Yoshihiko Noda.
In France, the equivalent VAT is already 19.6% on most items—something the otherwise rebellious French have swallowed long ago.
Both are welfare states, but the French government isn’t shy about asking its citizens to pay for most of it now, rather than shuffling it to the next generation or, like Japan, towards a cataclysm that will one way or another bedevil in the current generation. There is no country in the developed world that is fiscally as undisciplined as the otherwise so disciplined Japanese.
And yet, amazingly, fiscal discipline is exactly what Jun Azumi included in his sermon to President-Elect François Hollande when he pressured him to maintain the fiscal policies and budget focus of outgoing President Nicolas Sarkozy.
“We want France to do what has been decided so far, and I’d like to tell them about that if there is the opportunity,” he said on Tuesday at a news conference in Tokyo.
On Monday he'd already come out swinging when he claimed that Hollande "fully understands" that European finances would need to be sanitized despite loud and clear campaign promises to the contrary. Hollande wanted to renegotiate the fiscal union treaty that attempted to get the 25 EU countries that signed it to live within their means. He wanted to focus on measures of “growth,” namely deficit spending, including on large projects, preferably with "European" funds, rather than French funds.
“I want him to act based on understanding the schemes and thinking that we, the IMF, and the G-7 have cultivated up to now,” Azumi said sanctimoniously.
But there is a difference. In Japan, funding out-of-control deficits and rolling over the gargantuan debt has been made possible by the institutional setup and cohesive psychology of Japan Inc.: 95% of JGBs are held within Japan. Individuals directly or indirectly hold over 50%. Government-owned or controlled institutions hold over 40%. Among them: the Government Pension Investment Fund, the government-owned Post Bank, financial institutions the government can lean on, and the BoJ. Foreigners hold only 5%. Hence, speculators and foreigners cannot inflict a debt crisis on Japan. But they can on France.
Azumi warned of "destabilizing" effects that the election results in France and Greece could have on the foreign exchange markets and worried about a further rise of the yen against the euro—and perhaps he saw the Greek drachma on the horizon, to be drastically devalued, rendering Japanese goods unaffordable in Greece. And if the wave of returning to former currencies continued to Spain, Italy, or France....
The arrival of Hollande, the “President of Growth,” was greeted with excitement—or exasperation—in Europe, while Sarkozy confirmed he’d quit politics. He complained about journalists dogging him. “I’m spied on,” he said (ironically). “I hope they will leave me alone.” But that’s precisely what they won’t do because, on May 15, he’ll lose his immunity that has protected him so far against a ton of malodorous allegations. Read.... Blowback from 15 Years of Campaign Finance Shenanigans.