Alan Greenspan has cut U.S. interest rates six times since January. Last week the Bank of England again shaved rates by a quarter percent. But Duisenberg stayed put. Again. He’s offered up only one measly cut this year, despite prodding from other central bankers–and plenty of evidence of Europe’s stalling economy (story in europe section). His fears about inflation are understandable, but shouldn’t a global recession trouble him more?
Koizumi has bigger problems. After he was elected on a reform agenda, Tokyo’s stock market plummeted last week to its lowest point in 16 years–a suggestion that everyone thinks he will fail. And now Koizumi might have to renege on a promise. He has vowed not to bail out ailing banks, but because of their large (sinking) stock portfolios, they need help now more than ever. If Koizumi refuses, he could end up with a bank-liquidity crisis on his hands–or worse, a crash.
Koizumi apparently has a plan. As of September, businesses that can’t repay their loans within three years will be forced to fold, say analysts–a clear sign to the market that Koizumi is playing hardball. Then his administration will be able to subtly slip another cash infusion–between $1.6 billion and $3.2 billion–to the ailing bank sector (but only to those banks whose capital is below the required minimum). A bailout down the road, one might say, disguised as a get-tough policy now.
But that approach might still fail. Japan’s banks are crumbling because they have too many costs and bad loans. And their debts are mounting, growing higher every day. If the current rate of decline continues, the Americans will be buying out–thus saving–Japanese banks within a year, says Jesper Koll, chief economist at Merrill Lynch Japan.
Back in Europe, rumors abound that Duisenberg might unexpectedly stick out the duration of his term until 2006–and a recent poll of German political and business leaders showed an 80 percent approval rating of the oft-frazzled central banker. Maybe they fear change, like Duisenberg, who’s clearly happy with keeping his interest rates steady. At least Koizumi wants to make radical changes. The prize goes to Wim.
