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Avoiding the Japanification of Europe
As monetary and fiscal authorities have acted aggressively to blunt the COVID-19 pandemic’s economic impact, public debt and central-bank balance sheets have swelled rapidly. In the European Union, this trend is compounded by a new €750 billion ($886 billion) COVID-19 recovery fund, which includes the issuance of so-called “recovery bonds” guaranteed by the EU’s multiyear budget and, possibly, by Europe-wide taxation. This is a whole new world for all advanced countries except one: Japan. It is not the “nice” world of the 1990s, characterized by stable inflation, steady output, fiscal prudence, and a ... (full story)