Europe is not Japan
- Investors do not like uncertainty. Investors like to try to use the parallels of history to guess what may happen next. At the moment, some investors are suggesting Europe may follow the economic path taken by 1990s Japan.
- Using very basic data, this seems a good parallel. Japan's population was ageing. Europe's population is ageing. Japan had very low interest rates. Europe has very low interest rates. Japan's companies used bank finance. Europe's companies use bank finance. But Europe is not Japan, in several very important ways.
- Weak small businesses were a big part of Japan's economic crisis. Changing economic structures meant that Japan's smaller companies lost customers. They did not have the skills to find new customers. Banks kept the companies going, but created zombie companies. People were employed in companies with no future. Bank lending to Japan's small companies barely grew, and then collapsed. Employment in small companies barely grew, and then collapsed.
- In Europe smaller companies are doing well. Employment by small companies has risen. Bank lending is growing. The European labour market could not possibly this strong if small companies were in trouble. In the areas that matter, today's Europe is the reverse of 1990s Japan.
As an idealist I wish to believe that Europe is not the next Japan but the argument that it not thanks to strong European SMEs is a bit light ... I fully admit that innovation in Europe - thanks to its SMEs - is one of the bright spots. Europe is flirting with the same deflationary trends as Japan and the only thing that avoided being in that situation is a very accommodative ECB. The fact that Europe is more open to the rest of the world ie the EU allows some immigration will be crucial and will eventually allow Europe to grow out of it. However, this will not be possible with the current European mindset which is turning either more socialist or fascist and which kills any entrepreneurship going forward.
Senior Investment Manager, Adviser & Consultant
5 年And European SME's have access to private capital, which most probably was not the case in Japan then