Perspectives

Greece's financial crisis a reminder to Japan about its own Pandora's Box

What set off the economic crisis in Greece apparently was the revelation of the nation's financial deficit by the new government that took over last October. The previous center-right administration had manipulated data to make its debt appear smaller than it actually was. The center-left administration that won the general election exposed the deceit.

Confidence in Greece plummeted. Government bonds dipped, and amid fears that the crisis will hurt the rest of Europe, the European Central Bank and International Monetary Fund have announced a bailout plan.

"Without a bailout, it would be like Pandora's Box has been opened," said one well-known financial expert.

In Greek mythology, Pandora is a beautiful woman that Zeus sent down to the world of mortals as punishment for Prometheus's actions. One day, Pandora opens a forbidden box, scattering suffering, poverty, jealousy, greed, skepticism, starvation and hatred into the world.

Under a single-currency system, Greece and other EU countries share the same fate. Unless Greece undertakes sweeping financial reconstruction measures and other European countries provide support, the Euro will fail, throwing Europe into utter chaos.

When we talk about Pandora's Box here, we're not talking about the revelation of a previous administration's deception by a new administration. Rather, we're talking about ignoring an exposed crisis.

Japan experienced a regime change around the same time as Greece did. The center-right coalition of the Liberal Democratic Party (LDP) and Komeito was defeated by a center-left government led by the Democratic Party of Japan (DPJ). While the previous administration did not manipulate government finance figures in Japan, the confusion that has been brought about as a result of the new administration's efforts at wiping out anachronisms closely resembles the situation in Greece.

On April 30, Finance Minister Naoto Kan referred to the confusion in Greece at a press conference. "Problems have surfaced in Greece as a result of the regime change there. I think I, too, am being tested in my handling of fiscal reconstruction."

It was on Jan. 7 that Kan went from being state minister for national policy to finance minister. In a press conference on March 24, he announced his determination to submit a financial reform bill to the current session of the Diet.

Kan had been looking over a financial reform bill submitted to the House of Councillors by the LDP. Since then, he and Minister of State for National Policy Yoshito Sengoku actively called for a discussion of a consumption tax hike.

The push, however, suddenly lost steam before the Golden Week holiday in early May. Kan had been warned by Prime Minister Yukio Hatoyama to be more cautious about the issue, as a tax increase could affect the outcome of the upcoming Upper House election. Some say that a tax raise wouldn't have such an effect, but DPJ Secretary-General Ichiro Ozawa is particularly on guard about the issue.

Greece, meanwhile, wasted no time in jacking up value added tax (VAT) -- the equivalent of Japan's consumption tax -- by 4 percent to 23 percent, and in passing a bill aimed at cutting the budget deficit. Riots have erupted as a result, however, leading to several deaths.

What about Japan? This country has the worst budget deficit index in the world, but it continues to put a lid on the debate over consumption tax and delaying a financial reform bill, and the news most picked up by the media in early May was the traffic congestion caused by travelers returning from the Golden Week holiday.

Japan has its own currency, and 95 percent of its government bonds are owned by Japanese nationals. Consumption tax is set at 5 percent, which means there is ample room for a tax hike compared to Europe. Government bonds have somehow managed not to tumble, but lessons from Greece point to the potential crisis we have on our hands.

Kan is caught between the pro- and anti-Ozawa camps, and is considered the most likely successor to Hatoyama. We stand at a crossroads: will he follow through with his initial ambitions or ignore the latent disaster and place vote-winning above all else? (By Takao Yamada, Expert Senior Writer)

Click here for the original Japanese story