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Seven Samurai

G7 pact offers minimal cover for Abenomics reset

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G7

Quentin Webb 



Quentin Webb

A Group of Seven compromise offers minimal cover for Shinzo Abe. The Japanese prime minister's plan to revitalise the world's third-largest economy needs fresh impetus. Abe didn't get as much international backing as he might have liked from hosting the rich nations' club. But, the summit communique can, just about, be spun his way.

Abe's counterparts, understandably, do not share his view that the world risks another Lehman Brothers-style financial crisis. That is important because Abe has inexplicably committed to raising the country's sales tax next April, a surefire way to choke off recovery - unless a shock of this scale emerges.

Abe appears determined to brazen it out by arguing that everyone is, in fact, on crisis alert. The contortions at least serve a positive purpose: delaying the tax hike would be a good idea. And the G7's warning of increasing "downside risks to the global outlook" is perhaps slightly supportive.

On the wider question of how to jumpstart economic growth, though, the rich nations are clearly divided. They agree central banks can't do everything, but then stress that monetary, fiscal and structural tools should all play a role.

The ambiguity reflects huge philosophical differences between, say, Germany and Japan. That makes it a touch harder for Abe to unveil a huge, unilateral stimulus. It is also not super-helpful for the leaders to highlight how debt-to-GDP ratios need to be put "on a sustainable path". Japan's debts are towering, but as the previous tax rise showed, reviving growth has to come before worrying about fiscal rectitude.

That said, it was probably foolish to expect too much of substance from an international pow-wow like this. And, there is just about enough for Abe and his Bank of Japan ally Haruhiko Kuroda to work with.


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First Published: Fri, May 27 2016. 21:20 IST