DIJ Forum ‘The German and Japanese Economies Maneuvering in Uncharted Waters’
So, good evening. Good evening and welcome to the DI forum. Tonight, the German and the Japanese economies maneuvering in uncharted waters. Well, um this DJ forum is uh organized in cooperation with the Japan Association of Corporate Executives or more people will know it under Quesai Doyukai. Um I’m very happy about this about this collaboration and I um well specifically welcome the members of the Kai Doyukai tonight. We also have two commentators which I will briefly introduce. Of course, this DIJ forum would not be possible without our speakers. And I’m both very happy and also honored to welcome two outstanding economists as speakers of our event tonight. uh Monica Schnitza um professor at the LMU in Munich LMU Lutvich Maximillian University in Munich and she’s presently chair of the German Council of Economic Experts and uh we have on the Japanese side uh professor Noryuki Yanagawa from the University of Tokyo and he’s also member of the Council on Economic and Fiscal Policy of the Japanese government. So with professor Schnitza and professor Yanagaba, we have not only two internationally renowned economists, we also have two representatives of their profession whose advice is well sought after by the respective governments and um you know that’s not usual. No, I mean I’m also an economist and nobody asks me. So um so tonight we are really privileged uh to hear how they assess the situation of the German and the Japanese economy and of course beyond. So their presentations will be followed by comments from two prominent members of Kzai Duyukai. First of all Mr. Osamu Mugi who is who is um chair of the associations Japan and Europe committee and um his main job of course is to lead Kikman uh the world’s largest producer of soy sauce and of course very much affected by what’s going on internationally now and then we have Mr. Sho he’s partner of the industrial growth platform which is uh basically a business solutions consulting company or business solutions provider and but he’s also director of management uh of the institute of geoeconomics which is a leading think tank in Asia. So um yeah, I think the event uh tonight uh comes at a at a very good time. Um which of course nobody’s really happy about. Um and I think we are still under shock of what is happening in the United States. Um, and of course the topic is the German and the Japanese economy, but I think the elephant in the room is the Trump administration. And um I my apologies to the elephants. I mean I don’t want to insult them, but um um they are very kind and considerate animals. Yeah. Which maybe doesn’t apply to the people who now occupy the White House. Um so um I think it’s I don’t know what’s happening. Uh we uh see the dismantling of of institutions or at least the attempt to dismantle institutions to destroy which is probably most um important and lasting and most difficult to restore the trust in institutions especially international institutions. you know international collaboration doesn’t work doesn’t have a legal system which you can easily enforce so it’s really based on mutual trust and if you see that you know we had long time ago we had the world trade organization I don’t know whether anybody remembers WTO it was based on GAT the general agreement on trade and tariffs um and well we had trade agreements Uh, of course, I think the last multilateral round, the Uruguay round was in the early 1990s. Uh, after that, we had a growing number of bilateral or regional agreements also with Japan and the EU, of course. Yeah. But we still thought there is a rule there’s a rule based it’s a rule-based system and all of a sudden it’s destroyed by the biggest player. Well, maybe the second biggest if we if China depending on how you count in China. Well, anyway, so um of course we have enough other issues. So on top this comes all on top of the many other issues our economies are facing. Demographics is of course a big issue for Germany and Japan as is climate change, the digital transformation. Yeah. and of course our fiscal policy conditions which don’t seem fit uh for coping with all these challenges. So enough problems already and then on top we face this um international disorder. Yeah. Well anyway it’s not me to talk about that. Um I think it’s very interesting to see. I mean Japan and Germany are far apart in terms of distance, geographic distance, but we are relatively close in in I think the way we approach things and we um of course we also uh base our trust on on uh the rule of law and and institutions. So I’m very happy um to hear these two perspectives. uh uh they met today for the first time both speakers they didn’t coordinate so we’ll really get fresh perspectives from both sides and we’ll see how they match uh together with the commentators who will also more or less spontaneously uh react or would they hear so without further ado I would like to ask Monica to come up here and I will like to use this opportunity to actually thank France for this very kind introduction for the invitation. It’s a real privilege to be here and in such yeah stormy times I have to say not not because of the weather but um we just heard what’s going on and actually I come from Europe and in Germany in particular we had stormy years uh for the last couple of years. So each day you wake up and you think it cannot get any worse and then it does. So, so we will see what we can do about it, how we can make the best of it. And um let me start right away with saying um or using a a word by uh Churchill who said never waste a good crisis. I think if there’s anything that should come out of this evening that we shouldn’t waste a good crisis, this is definitely a very good crisis and we shouldn’t waste it and let’s hopefully agree at the end on how we can make use of this crisis to move ahead. But let’s first start with looking into the crisis and um this is what Germany currently struggles with. Uh it struggles with multiple challenges above everything. We have sluggish growth and I will go into that in a moment. We have a neglected infrastructure, an aging population. We need to manage migration. We have weakening trade and this happened already before Trump started with his tariff war. we have neglected defense bleeding spending. Um this is perhaps one of the issues where Japanese and and and European um difficulties um differ at the moment. But otherwise I guess you have similar um issues. And I could go on by adding low productivity growth. So AI digitalization is an issue that we haven’t um managed to to use to our advantage yet. We have climate change, decarbonization issues. we have this whole concern about de-industrialization. So the list goes on and on but I want to focus on the ones that I have mentioned here because I also think that this is um where we have some common ground and where it’s really interesting to exchange ideas. Now um we have an incoming government. I noticed only after I looked at the slides again this shouldn’t be one of the challenges. It should be one of the hopefully ways of moving forward. So please don’t misinterpret this. I should have phrased this differently. Please uh if there’s anyone from the media, don’t quote me on that. So, um so the incoming government um I will explain later has done one thing. Uh it’s actually still incoming in the sense it’s not been officially elected. So the chancellor will be elected beginning of May. But uh the coming chancellor, most likely coming chancellor has already negotiated with um the coalition partner which is the social democrats. The only available coalition party if you may has already agreed on a coalition agreement on on a contract and even before doing that they have already agreed on a constitutional reform of the debt break. So you may have heard that Germany uh has um um imposed on itself um a limit on how much def spending is possible. This is um um in the constitution. So in order to change this you need to change the constitution. For this you need a twothirds majority. The incoming parliament doesn’t have enough votes um in the center of the parliament. So if you exclude the far right populist and the far left um then you don’t have enough votes for getting a two-thirds majority which is why the incoming government tried to change the constitution in order to reform the debt break before the new parliament that was already elected actually starts um taking up its work. They had a 30-day period to do that and they used this 30 days and they did make this reform and as I will go along I will tell you a bit more why this is important and how it will play out. The definite uh goal has to be to prioritize the the financial maneuver room that they have created themselves now by doing this constitutional reform to um uh use it for future oriented expenses and structural reforms. But um I will talk more about this as I will continue. Okay, let’s start with the sluggish growth. The economist last year had this um title is Germany once again the sigman of Europe at the beginning of the 2000s. Germany was titled the German sigman of Europe. Germany at that point had low growth, had uh huge unemployment. Um and the question was is that again now a situation where Germany is uh in dire straits and yes actually what we see is that Germany has recorded the lowest cumulative growth in the euro era since um 2019. So the year before the pandemic started. So for the last five years we didn’t have cumulative any growth at all. It’s tiny if you it’s positive but tiny. So yes, of course, due to the pandemic, we had this huge downturn. Then we had um an increase again and then um we had the Ukrainian war. So Germany didn’t get Russian um gas anymore and that definitely hit um a lot. But then uh all the other countries uh increased um their their growth and um Germany is this line here. So it’s um basically not really uh above the the previous uh um level um and um all the other countries are doing better and the question is why is that the case? So um the question is also what you can do about it. Let me start with one um one ingredient. We have too little investment and one part of this too little investment is we have too little investment in infrastructure. So I can show you this hole. This is a hole you find in many roads. Um you will find collapsing bridges in ten very famously a collapse a bridge collapse in the bridges are collapsing or before you they collapse you actually close them and then you have to take huge detours. Um uh you have uh trains that do not run on time. So I come here and to my surprise this is possible not in Germany. So the anecdote I usually start uh with when I do this presentation in Germany is I don’t need to show you numbers. I only tell you how how late I was today when coming by train. Well, okay, this doesn’t work here because here I’m in time. That’s perfect. But the biggest delay I had on one of these occasions was I was we had a meeting with the CEO of the German railway and his board members and I had counted in a delay of or um yeah some maneuver of of two and a half hours and the train was late by three hours. So I arrived half an hour late to this meeting with the CEO and the board members. They were very upset about this and felt very sorry. And then while we were having our meeting then I looked at my smartphone and it said and your train back is canled. So this is Germany for you if you haven’t been there for a long time or have never been there. This is what Germany looks like. And of course one of the problems is there was too little investment. So too little maintenance. I mean you need to m and and and the longer you delay the less it works. So the more you need to do about it and the other thing is of course now there is some maintenance but um that means now you have to close down uh some routes to do the maintenance and that um means it takes a long time before actually the building is done. So this is what needs to be done. you need to um invest a lot in in infrastructure. Um so here here are numbers. So we see that um this future oriented public spending on infrastructure on roads on bridges on railway and so on has been lower in Germany um than in has been in the EU average and this has been the case for for decades. So you see the red line and the red line gives you the numbers for the EU 27. Uh you see the the other line below that’s the EU1. So the new members uh that joined the the EU um later and all of them have spent more on average than Germany has for the last couple of years and that is a problem. So now we have the constitutional change to the debt break which gives us now explained to you a moment ago. Um this now gives us funds special funds for the infrastructure investment uh outside the debt break. Um it also gives us money for defense but I will come to that later. Um the big challenge is to prioritize the future oriented spending. Why? Well, it was not always the case that there was a lack of spending on infrastructure because we didn’t have any money. It was also due to the case that um the government didn’t simply want to spend money on infrastructure but rather on pensions. I will come to that in a moment. So on consumption we would call it not on investment but on consumption. And here you the the trouble is really you have um political bias in a sense. So um the government likes to spend money that u helps the electorate. Now the electorate in Germany in the last election was u 40% 60 years and older and the remaining 60% were younger. So if you have such a huge electorate that is consisting of people older than 60 then yeah you like to help them with their pensions and this is what the government did and they did not spend money on um future orientation on infrastructure that’s also relevant for the generation to come on um this kind of um consumption no not investment okay here we have it this is the aging population it’s wonderful that they can live very long, very healthy and um we all want to um achieve that. Um definitely I want uh to do uh and enjoy this myself. But the problem is that um this makes us the aging men of Europe. Uh we live longer and um at the same time we have less kids. So this generation treaty which tells you okay you support the old age pensioners and at the same time you have raise the kids that will later on then support ourselves. Uh this is not working if uh half of the um equation is not fulfilled namely you have too few kids and this is definitely the case in Germany since the 70s already. Here we see that right now we have um for one pensioner or for one person above the age of 65 we have three people that are between 20 and 65. So the workforce if you may and this is going to increase to one over two. So um just one above 65 and two only two between 20 and 65. So the old age dependency ratio will increase and that um would be even worse if it were not for migration. So this line the line now that we see the red line is how it will develop. So it it makes difficult to uh support the pension system. It would be much worse namely the um the black line or if it were not for migration which is the gray shaded area. So two problems here. First of all, the pension system doesn’t work. So we at the moment already we support the pension system with one quarter of our federal budget and this will increase much more and the contributions for the from the young generation will have to increase a lot or if we don’t change anything here. This would be exactly a structural reform that we would need the government should do. But they don’t explicitly they don’t because they don’t want to um impose any burden on the pensioners. So this is a huge issue. The second issue that arises here is we lack a skilled labor force and um for this um we would need now either more people working so more women working or women working more longer hours. People working longer. This is one of the reforms. So working longer um they don’t do that in Germany. They do this much more in Japan as I here um and to have more migration. So let me come to migration. The migration is a huge um concern in Germany and the problem is distinguishing between two kinds of migration. the migration that you um manage in the sense of you select who you want to come in and the migration that happens due to asylum seekers or or people that that flee from from wars like from Syria or Ukraine. So if you look at the migration that you need if you wanted to keep the labor force as large as we have it today, you would need this is this line here. you would need a net migration of 400,000 people per year coming to Germany. Now, in order to have 400,000 people coming per year net, you would need 1.5 million people coming because 1.1 million actually leave the country every year, either to go back to their home country or to go to another country, whatever the reason is. But a lot of people leave the country so you need quite a lot of migration. So the problem is that at the moment we don’t um yeah manage the migration in the sense that we we organize it such that we bring people in say from India from Egypt people that we would need to do um computing for instance. Um the problem is the kind of people we usually got before from Italy, from Greece, from Romania, from Poland are not coming anymore. they have the same demographic problems. So in the sense uh this is not the solution. We need them to come from outside sorry the European Union and they are not coming in that large numbers. We don’t make this happen. At the same time we have a huge number of refugees and they are not popular. So people don’t like that and this is why you have the lot of right-wing um lot of votes with the right-wing population and um the fact that they don’t like this means that the foreigners you want to have don’t come because they are afraid of a country where people that look foreign are not welcome. So lots of issues here. Then we have weakening trade. Um and here the issue is we have this weakening trade already before Trump arrives on the scene. So actually for a couple of years we have seen that exports were not as strong as they used to be and we always thought okay this is due to the fact that um well global the global economy is not doing well. We had all this crisis so um there was little growth. Then we see more growth and we still see exports are not picking up. And then we looked at the numbers more closely and we figured out that actually we have a decreasing elasticity of exports to the growth rates of export markets. So for instance for China we see this decline. So um we used to u if um growth picked up in China export much more. Now for the same picking up of the growth of um the economy in China we have much less exports and the same for other countries as well. Now in particular for China one of the explanations is yes of course we have higher labor costs we have higher energy costs all this is bad but we also have not competitive products anymore. So our products look at cars, people in China don’t want to buy combustion engine cars anymore and the battery electric vehicles that we have on offer are just not as good as the Chinese ones. So simply we have a bad job selling our cars there. And now you come and see the tariffs that Trump imposes. And now you see that we’re really in trouble because the United States um yeah is our largest export country and we export much more to them than we import from them. This is exactly what he complains about. also number one for exports, number three for imports and that uh shows you that we are in trouble if now Trump wants to eliminate this this gap. Um the same thing or if you look at Germany and the EU in general um although one thing is interesting uh Germany um has um a trade surplus with the US. The EU in goods has a trade surplus with the US but for services it does look different here. Um the EU has a trade deficit with respect to services which means if Trump comes and says oh it’s not possible that we we have a deficit with you with goods well then we can say okay but it’s the other way around for services and that actually should be a argument in the trade negotiations and how actually we will deal then with Trump I guess we will figure out in the in the discussion I have some views on that but I will leave that definitely the tariffs will hurt big or this is just one one first estimation from the Keel Institute. It will hurt most the US but this is something that Trump seems not to understand. Um and and yeah, so there’s not much um at this point we can do about this. But the question then is how we will react. And this is um the question about retaliation. No retaliation. I think definitely we need a coordinated response of all the EU members. It would be great if we could co coordinate with Japanese um government as well. We definitely need to foster trade integration with the partners outside the US and that hopefully we will manage. So that that I will try to do. Last thing neglected defense spending. So um we experience in in Europe the big um US dominance in military aid for Ukraine that in several weapon categories simply US is not um possible to replace. think of all the kinds of u um um military um equipment that we need and where the US is simply the only provider or basically the the the yeah has such a huge market share that it’s not impossible to replace it and um if you look at what European countries so far did was how much did they spend on on military in the NATO sort of obligation was to spend 2% of GDP GP on um defense spending. Actually, Eastern Europe uh increased their spending a lot over the last couple of years after the um um uh war or shortly before the war in in Ukraine started. They increased it a lot. Uh Germany at the moment spends a bit more than or something like 1.5% or before in 2021 it was 1% now it’s something like um almost 2% um yeah but but a lot of the other countries are still much below and that means um that is definitely not enough if the US is no longer willing to protect Europe. Now you can ask yourself, why did he ever do so in the first place? Why don’t we protect ourselves? Well, so far we didn’t have to. Now we wake up and see the world has changed. And Trump says no longer. No transatlantic um deal support whatever anymore. And here we need to wake up and um get our act together. So is there a new world order? The world changes. You have the Ukrainian war. We thought this is changing our relationship to Russia and to China because now we see China much more as a threat. Now with US, you all of a sudden think, okay, maybe China is not so bad after all. Maybe let’s turn again back to China and by who? Away and not um equipment and not not US equipment. So things change actually very quickly. Where should we go from here? I think for Germany, we need to stimulate growth. The debt break reform should help us but we need to spend it wisely on future oriented investment and I I phrased it already. I have some concerns that the new government is actually do doing that. We need to um spend more on defense spending. We need to increase our technological sovereignity and in Europe we need to foster economic and political integration. We need to build a coalition of the willing. This is the expression now. those company uh those countries that are willing and able to spend money on defense should do so and well as a world I think altogether we need to increase our resilience by decreasing our dependencies from US and from China and we need to find partners and I hope Japan will be a partner for us. Thank you. Well, thank you. Thank you for inviting me to this wonderful conference workshop and uh I’m very honored to be here. My name is Nori Yuki Anagawa from the University of Tokyo. But today I I’m thinking that I’m invited as a member of the council on the economic and uh fiscal policy in Japanese government. So I have to speak about the the policy of Japanese government. But uh the first half of my presentation I just explained my opinion and the second half of presentation I’ll explain the the papers by the the council and explain the some of the detail of the Japanese government policy. Okay. So anyway that uh it is very good time uh to talk about this uh uh Japanese economic condition and Germany economic condition and discuss about the collaboration the coop cooperation between Germany and Japan. I just listened Monica’s presentation and uh I very excited to understand the the problem main issue or problem is very similar so that we have to coordinate more about uh solving these problems. this that collaboration of the Japanese government and uh Germany government is also important but uh collaboration among the private companies or academia should be very important to solve these potential very difficult problem. So I now I’m going to explain my opinion and this is not uh exactly equal to the Japanese government’s opinion but the the point is very similar and I think this we have four uh very difficult uh constraints or exogenous barrier Japanese economy is facing. The first one is of course uh tariff policy under the Trump’s administration. I’d like to explain very much about this issue but it’s time is limited so that I skip this point but uh I have to we have to think about more coordination cooperation among the countries so we have uh similar friendship among the Germany and Japan so that we have to collaborate so the trade kind of collaboration so trade liberalization framework work to discuss to overcome this uh very difficult situation. And the second one is uh this is very similar to Monica’s presentation that we have the popular population decline and aging society. So most of as you know that many of the Japanese problem facing Japanese econom problem is coming from this situation. So that if the Japanese economy is more young and uh not aging society for example that the fiscal policy and the social security problem will be disappear so that we have facing many different situation so that I think that’s the main issue or main big problem we are facing is coming from the aging society. So that’s this is uh we don’t have exact very good solution but we are facing the population decline. So this is the main constraint and third one is related to the second point is now we are facing the labor shortage and uh supply constraint. This is main issue now we are facing exactly now. So many of the companies in Japanese companies are facing labor shortage. It’s very difficult to hire the new good person, new workers. So that’s everybody every company uh facing this supply shortage. So I’ll explain later but uh the if we facing the supply constraint so this situation is clearly different from the economy which facing the uh excess supply or some of the less so the demand shortage you know that’s most of the kynesian policy fiscal policy or monetary policy has aimed to stimulate ex aggregate demand. You know then a stimulation of aggregate demand may make more higher GDP or higher e economic growth rate. But now we are facing that constraint of aggregate supply. If we are facing the aggregate labor supply or aggregate the capacity constraint stimulation of the demand side would be harmful for the economy you know for example very uh simple example so now we are facing the lack of taxes you know that almost the Japanese people know that we don’t uh we cannot use the uh Uber or something. So that we can we have to use the taxes and if the demand is not so big so that we we we are facing the so many empty taxis. So we can easily catch the taxi driver in that case subsidy to usage of taxi is very useful for the total economy. If I can ride the taxi, use a taxi by very small money. So I can use the taxi so much and the taxi driver can get the higher money and they will pay more consumption. So this is the positive uh feedback to the total economy. But now we are facing the shortage of the taxi usage. So in that case if we Japanese government subsidize the usage of taxis then what happen? So more people want to use the taxi. So it much more difficult to get the taxi and in that case some persons more eager to use a taxi more urgent to use a taxi. For example, my friend uh can some some kind of very serious problem of the health then he has to use taxi very urgently but the stimulation of taxi demand it’s make more difficult to catch up to taxi. So this is the total damage to the economy you know in that this is very simple example but we are facing that kind of situation. So stimulating the aggregate demand it would be harmful to the economy but it is difficult to change the policy directions. So most of the policy will be aimed to stimulate aggregate demand. So now we have to change the policy situation or policy main kind of uh main point or main doctrine of the Japanese government policy. So I will explain that point later. So the first point is of of course you know very well. So the generative AI and the digital technology the is very the speed of uh this growth of the generative AI is very high. So it is difficult to catch up the very high speed of this technological change to the economy. So this fourth point is the four point is exogeneous variable facing the Japanese economy. then we have to change some of the our policies, our situation, our economic condition. So I’m I’m thinking this uh four or five variables will be endogenous for the Japanese government. But it’s not difficult and not easy to change these variables. First is we have to raise the productivity and potential growth rate because we the we are facing the very shrinking the workforce. So in order to raise the potential economic growth rate as a whole. So we have to raise the e uh economic productivity of each person each workers. So should be that uh change the rigorous uh regulation to improve the labor productivity and the potential growth rate is very important. And the second one is the point that the Japanese government now was stressing. So increase of wage rate, raise of wages, raise or rise very crucial. Please ask don’t ask me about that there’s a difference in some Japanese government can posibly said Japanese government expect to rise of wage real wage but it’s difficult to do that but increase of wage and the increase of domestic investment stimulation of that point so can raise the potential productivity and potential economic growth trade and then we can get more stable and strong economy. So that’s is the aim of the Japanese company the main point. So in order to raise the labor productivity and as a result of the real wage rate I’m thinking that the education or reskilling will be very important to realize that point particularly for the sila age we say so old generations 50s or 60s or 70s is. So they have a very strong uh motivation to keep working but they have uh not so they don’t have not appropriate uh skills to continue their working. So in order to help the their motivation we have to promote the reskilling and promoting the human capital investment to to the the peoples or old generation that could be I’m stressing these kind of policies important and of course the totally as I said social security reform and the physical sustainability is very tough but uh uh very important problem for Japanese uh society. So because the we are facing aging society. So the social security reform is not so easy problem but we have to do that. So how to do that? It’s uh much depend on the political situation and as you know that uh we are now facing very political unstable situation. So that’s facing very difficult time but uh we have to push the social security reform and reskilling raise the productivity and raise a potential growth rate. So by raising the pot uh potential economic growth rate we can relax the total supply constraint. So that we the solution to the Japanese government I think so this is my opinion but uh I’m um expert member of council of economic fiscal policy uh queski uh most of you know about the detail of the members but the key point is the the chairman of the this coun council is the prime minister Ishibasan And uh members uh most of members uh uh cabinet members and uh additionally so this council have the four expert. So this is uh uh Minkang the private persons. So one of the expert member is uh me. So my as I attending this uh council as a professor of university Tokyo. So the the chairman is uh the pe the prime minister’s chairman is a very crucial for this this understanding this council. So so this mean determination of this council is the determination of prime minister. So this council is not just the advisory board not just the third party the aggregation of third party opinion. This is the very formal determination of Japanese government. So this this point is has the positive side and the negative side. The positive side is if I can push some of the policy in this council and can realize and can determine the realization of this policy then this is the formal a kind of formal determination of Japanese government. So this has a strong power to push this policy. But on the other hand, this mean that Japanese government or Japanese prime minister hesitate to exact for such a strong policy by the formal statement because this become a Japanese formal determination. So honestly speaking the my presentation are my opinion it in some sense it’s very limited because this is the formal process of Japanese government so that’s uh in some sense there is a political negotiation within the council so that’s this is very typical situation in Japan so that’s uh I so ro council this is a formal statement you can see on the homepage of Japanese government. So that’s in some sense of this. So that I the half second half of this presentation I briefly explained the uh expert paper on April 10th. So every meeting of the council so experts members four experts members present submit the paper to the council and showing the opinions to the direction of the policies. So that I explain very briefly about that this point uh this paper on April 4th uh 10. So that’s uh first that the current econom context is that just similar to as I said the Japanese facing long-term structure issues population decline and aging society and uh there is global uncertainty. So we have to prepare to realize fiscal credibility by stabilizing debt to GDP ratio and uh consistent long-term economic policy uh economic fiscal policy directions. So that’s we we we we would like to make some kind of framework to realize the sustainability of the our fiscal conditions and uh in order to realize this uh framework we have determined the revitalization plan. uh so this is the plan to backcast from 2030s to make a sustainable economy and sustainable physical conditions and demographic different decline. The target period is uh 2030 and in order to make a more sustainable economic conditions but flex response to inflation and volatility and uh aim for wage and investment driven growth model. So this is just I very similar to just I explained that there is a wage rate there is the investment this point may have a positive feedback to the total economy and uh very we would like to realize a very good cycle wage rate investment and economic conditions and by doing that we would like to realize the fiscal improvement So in order to boosting the potential growth and uh so uh sorry that’s so our target is uh more than 1% of real economic growth rate in order to sustain this Japanese society. So this is uh necessary condition not necessary I’m thinking this is necessary condition but uh in this declining population economy 1% economic growth rate is very tough target to realize. So in order to realize this point we have uh so this uh S policy they we are proposing that uh supporting wage growth you know that’s in Japan that wage rate we we we are we were thinking that wage rate is constant not to be raised but now just we are facing the inflation rate so that’s uh nominal wage rate becoming uh more higher but uh in order to improve the economic condition. We have to raise the railway. So this is very tough. So we have the Japanese government promoting kind of uh change of momentum. I’m not sure that’s that changing the momentum is enough to increase the wage rate but uh this is promotion in some kindness. So that’s by raising the potential with growth rates and in order to that do that uh investment to the strategic area green investment. So or why spending based on the EBPM this is the source point of the this concept. So yeah, we we have to pay something so that uh as as the similar to the German situation more wise expenditure or spending is necessary. What do you mean the wise is more effective to the future economic growth rate or raise the future well-being. So that so we we we we have to shift our expenditure to more so gross enhancing investment from even by the Japanese government. So you know that so enhancing supply capacity is important. So Japanese policies more should be more stressed to enhance the supply side. So I would say that yeah reskilling labor mobility and uh deregulation of the labor market will be very important to to Japanese government to Japanese but this is very tough uh policy okay so that’s uh then we have we some proposed uh social security reform reform. So in order to sustain our society, our economy so that social security reform is is uh necessary but it is very tough. So we we we I’m writing some of the very uh detail but uh it’s very tough in this political situation but uh social security home is necessary to so so I I I have no time to explain the detail about the social security reform measures but uh using digital technology or AI to the public sector would be necessary and uh some kind of uh uh medical industry or the health industry. So stimulating the growth rate or economic growth rate of uh health industry will be very helpful to the raise of Japanese potential growth rate and simultaneously helpful to the our social security system. So that would my source point but uh I’m not in this paper I couldn’t stress this point but this is a formal paper of this and uh I think uh yeah the you know in this uh 20 or 30 years Japanese government Japanese economy facing the deflation So price this doesn’t do not change and wage do not change. So now we are facing kind of uh slightly uh positive inflation rate. So I it is a chance to change the nor atmosphere of the our society our economy. So the Japanese government try to stress this point and uh we we are making we we like to making a more uh make uh more uh slightly inflating economy not deflation economy. So in order to do that uh we should accept the change of prices or raise of prices by the private company. So we we promoting that kind of situation. So this is the our recommendations. So that’s the uh uh just translation or summary of the paper the expert paper. But uh basic point basic point uh importance of this economy is uh as I already explained the the first half of my presentation. So this is very tough work but uh and uh political situation of Japanese government very unstable and outside of this economy the the situation of United States is very also tough but uh we have to push these kind of policies to re to to realize the more better economy. Thank you very much. Okay. Uh first of all thank you very much for uh inviting us uh to uh uh and actually uh thank you for co- uh hosting uh this event and uh you know at first I thought about uh making a brief comment you know on the you know several issues uh covered by two presenters uh however that I found out uh one very um you know important issue lies you know between uh Japan and Germany uh which is future oriented investment uh which was mentioned by Monica. So I’d like to uh make a brief comment on that and uh uh Monica spoke about future oriented public spending and lately I’ve been feeling that this future orientation is precisely what Japan lack the most. Um in fact uh this is not just a problem for Japan. Uh it’s something uh we’ve seen across the globe and since the outbreak of the coid9 pandemic in 2019 followed by uh conflicts war in uh Europe and the Middle East soaring inflation and the tariff policies under the new Trump administration. the global political and economic landscape has remained in a state of turmoil. Of course, uh being agile and responsive in in order to survive is crucial. Uh but uh precisely because the future is so uncertain, we must not stop doing the obvious things uh that should be done as a matter of course. uh in the corporate world we have vision and the purpose uh to serve as a compass and all strategies and all strategies are structured to realize uh such vision. uh in contrast I feel that Japan currently lacks a clear vision of what kind of country it want to become in the future how it wish to uh engage with and contributes to the international community. So uh each individual policy may be clear uh carefully designed but it seems that policy maker are too preoccupied with uh respon responding to one social issue after another and as a result they are unable to grasp the broader picture um how these policies will shape Japan 10 or 20 years down the board and because of uh this big picture is missing uh policies tend to lean toward what is popular with the public. Reforms that involve real pain are delayed and nationalism spreads and populist party gain traction. I believe this is the environment we now find ourselves in. So uh you know as I said uh I don’t have any solution for this but uh how can we change this trajectory a wise person like you two could give us some suggestion that’s you know what I want to hear Thank you. Uh thank you very much for having me and uh thank you very much for your great um insights from your presentation. Thank you. And uh I from your presentations I think um the um both two countries Germany and Japan has um lots in commonality like you know um aging population and uh labor shortage and uh I think um what I’m I’m I’m really interested in knowing that uh because Trump’s um taliff um Is there the distance between um China and our countries? I mean like you know German and Germany and Japan and the distance um from US will be changed or not from the from the um governmental policy side and uh from the um like um business from the business environment. That’s what I want to know right now. Yeah. Thank you. Yeah. Well, thank you very much. So, uh maybe a first response from from your side to these comments, but you may also respond to of course Nor’s presentation and vice versa. Yeah. Monica, you want Okay. Um so, thanks a lot for these comments. Actually, I couldn’t agree more. So in particular as you started um uh and saying we lack a vision actually that is exactly what I’ve been telling not just politicians but also companies for quite some time. Um we are stuck in this old way of doing business which in Germany means manufacturing cars, building very good cars but we are not doing it anymore. and and uh this concern about the deindustrialization that has been coming up with the energy pricing, the rise of energy pricing. Yes, that’s true. We need to be concerned because of all the implications for for workforce losing job is is of course a problem. You don’t want that. At the same time, we have completely lost out on digitalization, artificial intelligence, and this is now the time to do it. So let me come back to Joshel and say never waste a good crisis. So this is a crisis. We now see that in military defense we don’t have the necessarily necessary skills to do the drones. We can build tanks but we cannot do build drones. We cannot do the uh intelligence uh that we need in order to uh see where the bases of the Russians are and then to to fight against that. So here we now need to use the momentum of the situation and increase our our technological capabilities. So in that sense perhaps that’s a chance that we should use and similarly with European integration now that we see that we uh have to get together a coalition of the willing it’s called to um yeah join forces maybe that’s also the the situation where we can now reform the European Union by doing it in a two layered version. So right now we are always hold back um by this uh rule that we need to decide uninously which is not possible because there are some countries like Hungary or so that oppose everything and so we should say okay forget it do your own stuff. uh we now form a new group within the European Union and we include the UK because foreign military we definitely want to have them um and and do a new organization that moves forward. Um I’m not sure we will manage uh but as you say we spent so much time on thinking about how can we help the pensioners here a bit and the farmers here and the I mean you wouldn’t believe what’s all written in this coalition contract which is completely waste of time and paper and money instead of really going for the big issues and perhaps the crisis was not big enough yet. it’s going to be and and so if we don’t uh use that challenge as a as a way of pushing us um then I think that’s a lost cause. Okay. Thank you very much the the Morgan’s comment that of future vision that’s I think I totally agree with you that that’s very serious problem. So we have to make some realistic future visions by the policy makers and uh also hold by the private companies. But so one big problem one difficult issue is that uh the future vision would be not so happy one. If we consider very realistic future vision that’s the goal would be very tough and not so happy one. So that’s uh it’s very hesitate to show present that kind of future vision to the people. So that’s the government or politician will think about that. But we we have to show some kind of more realistic but not so bad future vision will be necessary. So the convince that kind of uh future vision to to the people that our duty. So I I totally agree with this and uh this are related to China. So the shan’s comment is also I think very important particularly for Japan. So that we are the the physical distance to China or Taiwan or North Korea is uh very crucial for Japanese society. So this is positive negative side. So from the positive side that uh we can more mutual good relationship by the international trade between China and Taiwan and uh than Japan. So that’s international. So more close relationship by economic trade international trade to China will be very uh useful to to our st stable economy. This is positive side but uh the negative side of course the physical distance have uh very very difficult social security. So that’s uh now we are facing some kind of uh problem or uh issues to consider the our military defense expenditures of military defense. So that’s mainly the the geographic. So I I it’s difficult to explain but uh this ge geographic condition will be very uh very effective to our military conditions. So in that sense the relationship China or the Asian countries a very important point for Japanese economy or Japanese policies. And uh I just uh comment to uh to your presentation and uh you stress the kind of neglected infrastructure. So even for Japanese economy the infrastructure so the old uh infrastructure is very crucial. So but uh in order to sustain the the old infrastructures we have to pay so big money to sustain the infrastructure. So we are shrinking economy. So how much we sustain the this infrastructure will be a very crucial point for this economy or the the fiscal economic conditions. And the second point is the migration. So that’s uh it’s a very big difference between Germany and Japan is the degree of migration I think. So in Japan this is not so serious problem but uh many of the foreigners said to Japan Japanese Japanese government that because we are shrinking economy so it is better to stimulate the migration to increase the population. So but uh of course that there is a big potential problem by the migrations. So that that’s we should learn from the Germany to how to manage the vibration or something like that. So yeah, you learn how not to do it. Oh that might be solution. Yeah but anyway that I we’d like to know that your experience. Yeah. Thank you very much. I I I would like to pick up two more points here. First the question about China once more. I think that’s really interesting. So um a year ago or let’s say after the Russia started the war against Ukraine um I I changed my view on China and said okay if if this is going to happen if if if if Putin is so irrational in a way so going um against Ukraine is is not in his own economic interest I would have said and so if if he thinks that’s the way to go and he wins so much politically then actually most like she is similar. So I I also started reinterpreting she’s um behavior and I thought okay hm that that can be a very dangerous uh development there and so we should become less dependent on China reorient our exports or because um yeah that that could be the next imminent danger in particular if China goes against Taiwan which I think becomes more and more likely now after seeing what Trump is doing I would say Okay, US is also not to be trusted and we saw in the in the graphs here in the numbers that we are dependent both on US and China and before we we thought okay but at least US is our friend well not anymore and also this whole thinking of friends with states is actually nonsense we can be friends as people but not as states I think that’s a um romantic way of of uh seeing things we should be more serious about that more rational. And so now I think we should play them out against each other. So we should talk to Russia, sorry, not to Russia, to to to China and say, “Okay, we’ll do business.” Um, but if if you do things uh that we don’t like, well, we go back to the US and the other way around. So, so if China goes against Taiwan, I’m not sure how how that will play out, but but um I think we should use that strategically and we should really just use it strategically, not think about rule based on world order and so because the US is no longer rule-based and and they’re not our friend anymore. So, yeah, forget about that. One more thing about productivity growth. I think that’s really interesting that you um mentioned that there is so little productivity growth to some extent actually I see it that there that there are ways to improve productivity in Germany we discuss a lot about the bureaucracy and how the government and the admin is so ineffective but you see the same thing in big companies maybe even smaller ones but also in big companies they have the same kind of bureaucracies so service show that and I think there’s a huge way of leveraging this also the crisis and say okay let’s redo let’s become more effective and that would also help our say German car manufacturers they if they now face tariffs I guess this it’s very similar for you they have to become more efficient and they will become more efficient last time German car manufacturers became much more efficient was when Japanese car manufacturers entered the European market and Yeah, they were forced to become much more efficient and they did. So, so I think we can increase productivity by yeah better management skills and and and organizational changes and um yeah talking to the unions and say well this is not the way we can proceed. Do you want to one more question? One more question I’d like to ask um to um Dr. Um in aside or in in addition to the economy um in terms of the national security can we still see um US as a reliable partner at the moment? No. No. Oh my gosh. I mean this is what Trump says right now. I mean he said I mean think about NATO. NATO is Europe and the US and Canada. Mhm. And so if he thinks about quitting NATO, if he says, “Well, we’re not we’re not going to support Ukraine.” I mean, will he support Estonia if Russia goes against Estonia? I mean, it’s really eyeopening now if you listen now to historians, to political scientists, and if they say, “Okay, why would they actually care about that?” It’s astonishing that they did so for for such a long time. Mr. JD Mr. the JD bar said there for for for somebody in in Iowa or Nebraska or South Carolina what’s Estonia they wouldn’t know how where the country is actually located so and this will be the next targets so yeah I think this is a quite you know crucial moment because um I think it was Denmark Denmark regrets um having purchased um jet fighters fighter jet I mean F-35 from US they regrets It’s the same with I mean UK has nuclear weapons but they need the software from the US to actually make them go against any goal. Yeah. So it would be I mean we are suffering from a wakeup call right now. Yeah. Sure. Sure. Yeah. actually uh one of the uh bigger issue uh both of you didn’t cover was that energy issue and uh both country has uh slightly different situation but uh in Germany of course uh it well energy issue energy shortage is one of the uh you know bigger issue to suppress the economy itself and in Japan too uh I mean that now uh those uh nuclear you know power reactor starts to uh you know uh re re uh you know opened but um you know that we still have very strong negative feeling against nuclear power. So uh uh and also it’s ideal you know if we could achieve uh you know significant amount of electricity supply by renewable you know energy source but it’s still difficult because uh in Germany I understand that you needs to uh you know build uh infrastructure uh to uh send the electricity from uh like a northern part of uh Germany to uh you know southern part where that the most industry you know reside. So um you know having this kind of similar um you know problem uh can we cooperate you know Japan and German could cooperate to solve the problem? I think that the approaches are just very different. Um my understanding is you still rely a lot on nuclear power not on renewables and the German way has been to go very much um um in the direction of renewables and personally I think it’s the right way why for economic reasons because building new nuclear power plants is just so costly that you don’t find German companies who want to do that if they have to bear the full cost and it’s not clear why the government should bear the cost. If there’s cheaper resources available and and renewables are the production of new is much cheaper. The question well the only problem only in parenthesis the only problem is how to store well a lot of storage has been built now. The real problem right now is to build the grid um so that you can actually connect them. So the the the larger problem right now for the larger risk for a power outage is now not that you have too little renewable but that you have too much renewable and you cannot turn off uh the the plants that are connected to them. So this is what you have to do. You have to do a lot more smart energy production that you can turn off actually um and and so this investment has to be done. that will take some time and it it is an investment that that uh is also costly but in the end it will be the most cost effective. That’s that’s um the way I see it. Okay. There will be lobbyists of uh companies that that sell other energy and that they want to see other other um energy um fostered. But for nuclear you don’t see companies in Germany right now. So the companies when the government the incoming government said okay we should reconsider they said not with us if you pay okay but we don’t see this as an investment opportunity. Thank you. Thank you very much. I I think we can start opening uh the the floor questions take questions from the floor. before just a just a short comment because you mentioned the vision that is needed the long-term vision and both of you mentioned um the instable governments. Uh so uh this political instability is probably not the best condition to have a strong vision or political leadership and and maybe maybe it’s also beyond political leadership. Maybe we we need this strong vision as a narrative a narrative for for the people. Yeah. So because at the time I mean we are also divided. Uh Germany seems to be more divided than Japan or at least the Japanese division is not so obvious. It’s not shown in public. Um it’s behind the scene but in Germany of course it’s it’s we are very divided at the moment it seems. Yeah. But perhaps the governments would be more stable if they had more of a vision that they then stick to after elections. I mean the current new incoming government they had some vision of changing the economy but then they don’t um at least not it’s not in their contract. Um so having a strong personality that that comes with a vision say fly to the moon whatever I mean is something that that uh um gives people an idea where we are heading and why this is actually good for us. Um of course you know be more adventurous more more daring and if you lose some points in the next election. So this is was my hope. Sorry I I shouldn’t I shouldn’t but but my hope for a chancellor who is most likely not running three more times then maybe yeah well yeah maybe this would be someone who dares yes to come up with a vision even if he loses the next election. Thank you very much for attending today’s symposium despite your busy schedule. I’d also like to express my sincere gratitude to the German Institute for Japan Studies for their invaluable support in co-hosting and organizing this event under the theme of the German and Japanese economies in maneuvering in uncharted uncharted uncharted uh waters. Sorry. We are able to engage in indepth and multifaced discussion today. Experts from both countries exchanged views on the challenges and prospects faced by our economies and societies. I believe this symposium offered meaningful insights for all of us. What I was reminded of uh through today’s discussion is that the postcold war framework led by the United States and other western nations is now unfortunately collapsing and in this increasingly unpredictable environment strengthening this uh ties between Japan and Europe particularly Germany is not only essential for safeguarding our respective national interest but also for ensuring the stability of the international order. Uh in times like these uh it is more important than ever for politically and economically stable like-minded nations to collaborate in achieving economic development and social stability in their own countries. From this perspective as well, I strongly feel that Japan and Germany must further deepen their ties across polit politics, academia, and research and the economic sphere. Japan and Germany are both advanced democracies that value the rules of law and open markets. We also share many structural challenges such as our reliance on manufacturing and exports uh demographic change and the need to address digital transformation and decarbonization. Uh this shared background makes dialogue between our two countries all the more important. Uh this the opportunity to learn from one another through practical candidate exchange contributes not only to bilateral understanding but also to a more stable and cooperative international environment. So going forward, uh, we at the Japan Association of Corporate Executives hope to continue working closely with DI to foster deeper and more constructive Japan Germany dialogue. In closing, I’d like to once again thank all of our speakers and panelist for their valuable contribution and all of you for your active participation. Thank you very much. [Applause] Thank you. Thank you very much. And we need a little time to make space in the back. And those some might somebody who used uh earphones, I think these earphones will be now uh collected. Yeah. Um others who didn’t, they won’t be approached.
A rapidly ageing population, global warming, digitalization and AI, heightened geopolitical risks and a U.S.-induced tariff war – entering 2025, the German and Japanese economies confront an increasingly challenging as well as uncertain economic environment. They share similarities in terms of industrial structure and export orientation, but they also exhibit marked differences with regard to fiscal and energy policy or migration. How do they confront the fundamental domestic and international challenges? What possible scenarios do they envisage? These and related questions were addressed by two leading economic scholars. Their input statements were followed by comments from two Japanese corporate leaders, before the floor was opened to questions from the general audience. The event was followed by a networking reception.
Speakers:
Monika Schnitzer, German Council of Economic Experts 7:10
Noriyuki Yanagawa, Council on Economic and Fiscal Policy 30:11
Commentators:
Osamu Mogi, Keizai Doyukai/Kikkoman Corporation 56:04
Makoto Shiono, Keizai Doyukai/Industrial Growth Platform/The Institute of Geoeconomics 59:49
Introduction and moderation by Franz Waldenberger, DIJ Tokyo
This event was organised in cooperation with the Japan Association of Corporate Executives (Keizai Doyukai).
Details: https://dij.tokyo/gje
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