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Role Model: Land of the Rising Sun?

For years now, Japan has faced such challenges as an ageing population, high pension liabilities and persistently low interest rates. Europe is increasingly being affected by the same challenges. Can Japan's solutions also offer Europe a way out? Model solutions: Abe’s three arrows for Japan
The economic policy of Abenomics, named after Prime Minister Shinzo Abe, consists essentially of three arrows: fiscal stimulus including economic recovery measures, ultra-loose monetary policy and structural reforms. They are designed to ensure the generation of sustainable economic growth in the future despite the named challenges.
The ultra-loose monetary policy financed the government’s economic stimulus packages of over 230 billion Euro in infrastructure such as roads, bridges and earthquake protection. The tax cuts for companies - especially for technology companies – have also served to boost the economy. The Nikkei, Japan's leading index, has risen significantly in recent years and unemployment is at its lowest level in 25 years. Part of the structural reform programme included a liberalisation of the labour market and a deregulation of the energy, environment and health sectors to help restore Japan's competitiveness.
The initiative Society 5.0 is also intended to restore Japan’s competitiveness and to increase productivity. Accordingly, robotics was declared a key industry to counter the consequences of demographic change and the associated labour shortage in 2004. Robots are to be found not only in production halls, but also in the service and entertainment sectors. Already today, robots support and facilitate heavy physical activities, such as lifting during care-taking activities. Through targeted support, Japan has developed into an export country for robotics and is making a name for itself as a market leader in the long term, profiting from rising revenues and a relief on the labour market. Nippon is a pioneer of modern technologies and has promising companies whose shares can achieve significantly higher returns than any savings account.

Tried and tested arrows for Europe
The same measures could also spark new growth in Europe as it faces similar challenges. Japan's population has been shrinking for 20 years. Europe’s population has also started to decline slightly (if one looks at natural change, discarding net migration) over the past years. At the same time, while overall earnings, as measured by the per capita gross domestic product, are quite high, overall economic growth is sluggish and interest rates have been low for a number of years now and no end is in sight. A consolidated strategy at the European level is essential if Europe wants to keep its place. Arrows in the form of economic stimulus packages, greater monetary easing and structural reforms could hit the bull's eye here and thus help to secure Europe's future and continued prosperity.

At the same time, while total revenues, measured in GDP per capita, are quite high, overall economic growth is sluggish and interest rates have been low for years with no end in sight. But a consolidated strategy at European level is essential if Europe is to maintain its position as a region with a high average income. Arrows in the form of stimulus packages, major monetary easing and structural reforms could hit the bull's eye and help secure Europe's future and continued prosperity.

 

A sustained money flood in conjunction with low interest rates could help the peripheral states to pay off their debt burdens. This would boost the potential for economic growth – creating the possibility that growth outstrips inflation, so that the real asset situation can increase again and purchasing power can also grow more strongly. To make these debts more manageable, the European Central Bank (ECB) could hold a large proportion of government bonds - the Bank of Japan holds just under half of the outstanding Japanese government bonds.

Targeted credit-financed economic stimulus packages are a second measure that could help boost the European economy. The "black zero" goal, particularly in Germany, does not bring any added value in an environment of low growth or recession. Instead, the future must be secured through targeted support. Measures to expand infrastructure are important here - Europe's digital infrastructure lags behind that of many countries. There is an urgent need for action here, especially in the transition to 5G, so Europe is not left behind.

At the same time, key industries should be defined and systematically promoted. For example at present, Germany is the country with the fifth highest number of start-ups in artificial intelligence and the third highest density of robots in manufacturing processes. But such efforts need to be systematically supported and propagated through government funds as well as appropriate education programs. Structural reforms could provide additional support here by implementing reforms aimed at tax incentives for promising industries, especially in new fields such as artificial intelligence, could also boost growth. Other important structural reforms regard pension and labour reforms, which some countries have started to implement, but where much still needs to be done. For it is essential to reduce these long-term liabilities, especially in the area of pensions.

Bullseye for the future
The above measures and in particular the promotion of industries such as robotics and artificial intelligence could generate a cycle of success for Europe in which, on the one hand, a lack of jobs can be compensated by automation and, on the other hand, the products themselves could bring Europe forward in the arena of global competition. The Land of the Rising Sun has shown that robots can help when faced with an ageing population and the resulting shortage of skilled workers. And artificial intelligence is said to be capable of revolutionizing our world once again. The forecasted sales growth in artificial intelligence is expected to rise from USD 1.4 trillion in 2016 to nearly USD 60 trillion by 2025. Currently, the companies that are of interest in this field are – in addition to such well-known names as Amazon and NVIDIA from the USA and Alibaba and Tencent from China – Keyence and Fanuc from Japan.

Europe has the potential and the opportunities to stay big and move forward. To do this, however, it has to move away from outdated ways of thinking and to proactively, innovatively and courageously fill the quiver and put on the bow so the arrows hit the bullseye.