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92 Deleveraging, What Deleveraging<br />
the view that the currency denomination of debt is crucial and pointed to the<br />
report’s analyses of this issue, particularly in the case of China.<br />
Afternoon discussion<br />
Laurence Boone, Bank of America Merrill Lynch<br />
Laurence Boone pointed out how late the process of deleveraging has started,<br />
largely spurred by new regulation. In Germany it began in 2012, and similarly in<br />
France, where most of the deleveraging in banks is happening through the sale of<br />
assets. In Spain and Italy, it started very recently through the sale of loans. New<br />
regulation seems to have spurred this deleveraging. Still, it has not yet happened<br />
in any significant way.<br />
According to a recent ECB study, differences between Europe and the US are<br />
small as far as non-financial corporate sector debt (measured as a percentage of<br />
GDP) is concerned. This stands in contrast with the report. It is not appreciated<br />
enough how differences in bankruptcy laws in Europe and the US affect household<br />
deleveraging. In the US, it is relatively simple for a household to default on<br />
a mortgage and to walk away from a home, while in Europe the household’s<br />
entire wealth is wiped out before it defaults on a mortgage. Similarly, corporate<br />
bankruptcy law in Europe makes it harder to recognise loses and this has an<br />
impact on deleveraging, innovation and growth.<br />
Finally, the monetary policy stance has been much less expansionary in the<br />
Eurozone than in the US. When associated with non-financial corporation<br />
deleveraging, the result is a fall in inflation, which then negatively affects the<br />
ability to pay back debt. This is an important implication of the currently low<br />
inflation environment in the Eurozone.<br />
Kiyohiko Nishimura, University of Tokyo<br />
Kiyohiko Nishimura focused on demography. He argued the following:<br />
• The demographic bonus has been the source of excessive optimism in<br />
the large developed countries.<br />
• The emergence of bubbles and the subsequent crisis have been driven<br />
by the demographic change.<br />
• The continuation of demographic change heralds a period of low<br />
growth.<br />
A large working-age population relative to the non-working-age population<br />
offers a demographic bonus and the unemployment rate is kept relatively low<br />
and stable. Output exceeds what it takes to feed the population, leaving room<br />
for discretionary consumption and future investment. The developed economies<br />
benefitted from a baby boom, medical advancements lowering infant mortality<br />
and prolonging life expectancy, and global post-World War II stability. The slow-