AMSTERDAM May 10 Europe is at risk of a
Japanese-style "Lost Decade" of low economic growth, weak
consumer spending, poor company investment and tougher borrowing
conditions, the Dutch central bank said on Thursday.
It said in a report there were some similarities between
Europe's current situation and Japan in the 1990s, when the
latter suffered from a troubled financial sector and reduced
private sector spending.
"Now that the risk emerges that Europe also faces a 'Lost
Decade' of low economic growth, the Japanese experience offers
important insights," the central bank said in its semi-annual
risk report on the Dutch financial sector.
Japan's situation showed the need for the central bank to
aggressively fight deflation, and let banks take credit losses
quickly, the bank said, adding that fiscal stimulation did not
offer a way out of low economic growth.
The bank, which is led by Klaas Knot, who is also a European
Central Bank governing council member, said the risk of a double
dip recession had become reality in Europe.
The ECB's three-year money operations to banks had averted
acute liquidity risks but problems in the Dutch banking sector
and euro zone remained.
"Especially peripheral countries are vulnerable because of
weak government finances, a fragile banking sector and weak
economic performance," the central bank said.
"The European banking sector is not succeeding sufficiently
to regain market confidence and is too dependent on central bank
funding," it said.
Weak European banks needed to reform, and some banks might
need to be restructured, the bank said, adding that Dutch banks
and insurers needed to raise capital buffers, for instance by
holding profits or issuing new shares.
(Reporting by Gilbert Kreijger. Editing by Jeremy Gaunt.)