Hamish McRae: As its population ages and inflation stalls, Europe is becoming more like Japan than it might like to admit

Economic View: The reason Japan stagnated is because it did not want to make structural reforms

Mario Draghi says it isn't; many people fear it will become it; and would that be so bad, after all?

The proposition is that Europe will become the new Japan. It is not a new idea at all, but it has been given legs by the rising fears that one aspect of the Japanese economy over the past 25 years – persistent deflation – is in danger of becoming embedded in the eurozone.

Mr Draghi was seeking to tackle that possibility when he said that the European Central Bank needed a "safety margin" when tacking deflation. We learn today whether there is any significant shift in ECB policy in response to this danger.

At the moment the eurozone is still some way from outright deflation. The latest figures, for November, show annual inflation for the region as a whole at 0.9 per cent, up a touch from 0.7 per cent in October. But while in Germany inflation on the harmonised basis was 1.6 per cent, in Spain it was only 0.3 per cent (after zero in October). But you can understand the concern, particularly for the highly indebted periphery, which need some inflation to help reduce the real value of their debts. In any case the whole region is well below the ECB ceiling of 2 per cent, so it has room to move.

However, while deflation is naturally the aspect of Japan's economic predicament that the ECB focuses on, there are other ways in which Europe is coming to resemble Japan, of which the most obvious is demography. Or rather parts of Europe: I have shown in the graph the most recent UN projections for the population of Japan through to 2050, plus those of Germany, France, the UK and Italy. Japan is projected to fall from 127 million at present to 108 million. Germany is rather similar, falling from 83 million to 72.5 million. But Italy is projected to stay at around its present 60 million – though the age structure will be very different, while France and the UK are both projected to increase from around 63 million to 73 million – ie to become about the same size as Germany.

Now these are just projections. A lot can change. Strong job markets suck in people looking for work, while weak ones force them overseas.

In the case of the UK we seem already to be well past the 64 million mark, a level we were not expected to reach until 2016. France, too, is well past 64 million, at least if you add in Corsica.

So in population terms Europe is not the new Japan. Germany is, or at least will be unless its relative economic success sucks in large numbers of immigrants. Italy may become it if, as seems to be happening now, large numbers of young people leave for jobs elsewhere.

But France and the UK are heading in the other direction.

There is, however, a third dimension to Japan's relatively stagnant economy: the lack of structural change. That takes many forms. In Japan the issue is partly regulation, from restrictions on the retail trade and immigration, to protection of farmers and other special interest groups.

But it is also something deeper and very understandable: a desire to protect a lifestyle. Japan is safer and cleaner than just about any other country in the world and it is perfectly adequately prosperous. Why change?

If you look at Europe through Japanese eyes, you can see elements that are familiar particularly in Germany. There are also examples of the desire to protect what is seen as a special lifestyle, for example in France. But if you take Europe as a whole, there are certainly places that look outward rather than inward, with Switzerland, Scandinavia, Ireland and the UK at the top of the list.

The UK in particular differs sharply from Japan both in its attitude to immigration and its relationship with the rest of the Anglosphere. We are also very capable of generating inflation, perhaps rather too capable in that regard.

I think the central point here is that what has happened in Japan is largely the result of a choice of the Japanese people. There was an out-of-control property boom, the aftermath of which was bound to be a drag on growth for a decade. Policies were ineffective and there is a debate about why.

I personally feel the huge fiscal deficits and the ultra-low interest rates, while appropriate in the very short-run, actually inhibited what would have been a decent medium-term recovery.

But the real reason why the country has stagnated is because it did not want to make the structural reforms. It was a micro-economic failure rather than a macro-economic one.

Apply that thought to Europe. The region is a kaleidoscope. Some of the structural changes needed to make for a more competitive economy are being taken by countries on the periphery, notably Ireland.

But there are places where not a lot is happening – Italy for example. Germany, having pioneered labour market reform in the middle of the last decade, may now be relaxing again. The business mood there is quite cool to the grand coalition.

France? Hard to know, for the Hollande government is probably an interlude and the next government will take a different direction. The rigidities of the single currency and single interest rate don't help, but you cannot blame everything on the euro or the ECB.

If you focus on the narrow issue of deflation, there can be little doubt that the ECB has both the tools and the will to avoid the Japanese experience.

But this is not just a monetary matter, nor even a European Union matter – though a competent EU will be more conducive to growth than a bureaucratic one.

It is really a question of what people in Europe want. Do they want comfort and stability at the expense of growth? There is nothing wrong with that.

Or do they want something more exciting?

Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?