ADBI-PRI Conference on Global Financial and Economic Crisis – Europe in Crisis?: Lessons for Asia and from Japan

The conference on "Europe in crisis? Lessons for Asia and from Japan" is part of a series of conferences on the global economic and financial crisis. The event was successfully held in Tokyo on 17 June 2009. This one-day conference was jointly organized with the Policy Research Institute (PRI) of the Ministry of Finance, Japan, and covered three thematic areas on the current global economic and financial crisis: (i) implications for the eurozone and Asia; (ii) implications outside the eurozone; and (iii) lessons from Europe and Japan for Asia.

Two papers were presented in the first session of the conference. The first paper focused on the causes, implications, and policy directions of the current crisis in Europe. The crisis revealed that one-size-fits-all monetary policies could "nurture" structural divergence and lack of competitiveness, and provide no incentives for structural adjustments. Several policy challenges in a common monetary policy were highlighted by the current crisis, such as better fiscal coordination and stringent constraints on national budgetary policies. The second paper compared the European and Asian models of economic integration and revealed three major dissimilarities between the two regions: (i) sequencing of economic integration; (ii) structure of institutionalization; and (iii) level of economic and social disparities. The paper also provided three recommendations for Asian integration: (i) establishment of a central institution; (ii) formation of a regional economic community based on the freedom of movement of trade, services, capital, and labor; and (iii) exchange rate policy coordination/creation of a common currency.

The second session focused on the implications of the crisis outside the eurozone. While the euro has brought significant benefits to its member-countries and has facilitated the handling of the current crisis, issues on the imbalances within the Economic Monetary Union, in terms of growth, inflation, competitiveness, and current account and budget balances have beset the region in the last 10 years. The paper recommended enhanced macroeconomic surveillance, particularly on the fiscal impacts of asset cycles, competitiveness, and balance of payment issues, as well as the creation of an integrated supervising system. The second paper in session two stressed that the main challenge lay with the sufficiency of both the domestic and international responses to deal with the next wave of stress, when household and corporate insolvencies peak in the next few quarters, putting the banking and payment systems to a new test.

The third and final sessions were dedicated to lessons from and for Asia. The first paper compared Japan's crisis in the 1990s to the current one in Europe, and argued that in both cases, the fundamental structure of the crisis remained the same. The paper gave some recommendations for Europe with an eye towards building robust integration measures in the face of financial crises. The last paper in the conference focused on certain aspects of fiscal stimulus policies that were widely employed by both developing and advanced countries, such as size and composition, likely impacts on aggregate demand and growth, sustainability of countries' fiscal positions, and international implications of the new fiscal landscape. Key challenges arising from fiscal expansion were also identified; these include exit policies, rising fiscal debts, and further fiscal policy coordination in the post-crisis era.

The conference ended with a panel discussion that revolved around the three main questions raised during the day:

1. What made the financial and economic crisis severe in Europe?
2. Is the European response to the crisis adequate and/or appropriate?
3. What lessons can be learned and policy advice derived from the current crisis, particularly from the European perspective?

On the first issue, it was argued that the exposure to the sub-prime loans of European financial institutions along with a housing/asset market boom in Europe were to be blamed. On the policy appropriateness, most of the panelists agreed that the euro shielded the eurozone as far as monetary policy was concerned; however, fiscal policy responses of various national authorities were not well-coordinated. On the lessons learned, panelists focused on the measures to reduce the severity or even prevent a crisis. Integrated micro- and macro-prudential supervision and surveillance, and fiscal policy coordination were highlighted in their recommendations.