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Economy

Abe, visiting Europe, faces tough push for G-7 policy consensus

FLORENCE, Italy/BERLIN -- Japanese Prime Minister Shinzo Abe hopes to convince Europe's reluctant leaders to take fiscal action to bolster the global economy, but forging a policy consensus remains a tall order.

"The G-7 needs to send a strong message that it is willing to resort to flexible fiscal spending," Abe stressed during a meeting with Prime Minister Matteo Renzi Monday, a position the Italian leader endorsed.

The global economy is bogged down by uncertainty in emerging countries and the crude oil market. Abe hopes to get G-7 members on the same page, particularly on fiscal intervention, when he hosts a two-day G-7 summit starting May 26.

Yet finding common ground could be difficult. German Chancellor Angela Merkel, whom Abe will meet Wednesday, is unlikely to draft a supplementary budget to finance spending measures as Abe hopes. Merkel is skeptical of shoring up the economy by increasing government spending. The German public believes any growth based on public-sector demand is unsustainable and eventually will result in tax hikes.

The public would rail against Merkel if she suggested stimulus spending. Her approval ratings already have suffered due to the influx of immigrants into Germany. A further decline in support could destabilize the government. Fiscal action hardly was mentioned at an April 25 summit among the U.S., Germany, Italy, France and the U.K.

European leaders don't even seem aware that Japan is calling for fiscal spending. There are no signs that the Japanese government has directly approached relevant officials, such as German Finance Minister Wolfgang Schaeuble, to communicate Abe's commitment to the idea.

"We will use all policy tools -- monetary, fiscal and structural," Group of 20 finance ministers and central bankers said in a joint communique in February. Citing this agreement, some sources say each G-7 country could simply pledge to do what it can for global economic growth if the group cannot reach a consensus.

Some at the prime minister's office think coordinated fiscal spending could help justify delaying the nation's consumption tax hike planned for April 2017. Abe has said he will stick to the tax hike barring something as devastating as the 2008 global financial crisis or the 2011 earthquake and tsunami. Economic concerns strong enough to unite the G-7 could fall under that category.

But it will be difficult to blame a postponement on the global economy if the group cannot agree on fiscal intervention. Japan would be forced to seek another comparable reason.

Abenomics would almost certainly be branded a failure by the opposition during the upcoming upper house election if the tax hike is postponed without an appropriate reason. Some in the ruling coalition say a delay could be justified if the economic impact from the yen's quick appreciation, cheap stock prices and recent Kumamoto Prefecture earthquakes worsens.

But a lack of consensus at the G-7 summit also could be used as a reason to not decide on the tax hike prior to the election, since that would suggest that the situation is not serious enough to merit coordinated action. Under this scenario, Abe could choose to dissolve the lower house in the fall or later, much like in 2014 when it held snap elections to gauge public opinion on postponing the consumption tax hike.

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