Greece and Japan: The same, but different
Greece’s woes are acute, while Japan’s are chronic. Who’s going to do better on the long run?
Both Greece and Japan are trapped in political deadlock, face higher taxes while cutting public spending, and must put their fiscal houses in order or face rating downgrades, writes MarketWatch in a commentary that draws a parallel between the situation of the two countries. The main difference is that in Japan people are not violently protesting on the streets.
At first glance, Japan seems like a worse-condition patient than Greece. Japan’s public debt is on track to top 200 percent this year, compared with less than 140 percent in the case of Greece. Japan is a ticking demographic bomb, with a rapidly aging population. Last year’s census showed that elderly make for a world record 23.1 percent of the population, while children under 15 account for a record-low 13.2 percent of the total.
The aging population will most probably result in higher taxes by 2015 to cover for the growing welfare costs, while prime minister Naoto Kan seems unable to get at least his own party’s support. And on top of all, in March the natural disaster struck.
Japan, however is no Greece. Around 95 percent of Japanese government bonds are in the hands of domestic owners, while more than two-thirds of Greece’s debts are owned by foreigners, who probably don’t care so much about the fate of the country.
In the long run, Japan’s debt worries seem more like a critical but slowly-progressing illness, that can go on for decades without having devastating consequences. Japan’s future is poor unless it gets seriously to work on its fiscal problems. The question is if it will choose the economy stimulus path or austerity measures, with tax hikes and cost cuts. [MarketWatch] Photo by Christina Kekka
