Given some of the headlines from this region in recent days, the air of optimism resonating from the Asia-Europe Meeting in London may have more than an air of unreality about them. But they also underline the very different atmosphere in the two continents whose leaders have been conferring beside the Thames. Nor is it only a matter of the difference between an Asia which has been severely buffeted by massive falls in currencies, stock market and asset values and a Europe which, for all the high levels of unemployment in some major nations, is girding itself to establish a major new international monetary zone and has seen share prices hitting record levels this spring. Despite some bearish predictions, the United States seems confident that it has found a new paradigm for prosperity, ever-increasing corporate profits and a general improvement in the financial well-being of its citizens as a whole.
Compare this Western optimism with the situation on our side of the globe - in particular in its dominant economy. The yen has been taking a buffeting in the exchange markets. Moody's has just downgraded the Japanese sovereign debt rating - and the chairman of Sony, Norio Ohga, has warned that the Japanese economy is on the verge of a collapse which could cause a worldwide recession unless the politicians take drastic action to stimulate growth. The government in Tokyo is advertising to urge people to spend, and, while the Dow surges above the 9,000 level for the first time in its history in New York, figures emerge showing that the largest Japanese lenders have an estimated US$575 billion in bad debts on their books.
Meanwhile, although Korea and Thailand are looking stronger than they have done for some months, elsewhere, Indonesia is still trying to negotiate a deal with the International Monetary Fund and, while they are looking stronger than they did last autumn, South Korea and Thailand still have a long road ahead of them. China remains dedicated to maintaining its currency's value, but there are inevitably warnings of the pressure Zhu Rongji could come under if the yen continues to depreciate. Hong Kong may enjoy strong fundamentals, but, as our opinion poll today shows, economic confidence remains at a low ebb.
Yet the mood music from the London summit is decidedly upbeat. Encouragingly, the Europeans pledged to keep their markets open to Asian imports, and predicted that the impact of the Asian financial crisis on the world economy was 'likely to be material but manageable'. So keen were they to show their good will they allowed Malaysia's leader, Dr Mahathir Mohamad, who still blames outsiders for his country's economic problems, a small but significant victory with the inclusion of a reference to 'speculation-induced instability' in the summit statement on the financial situation.
More predictable was the summit's message to Asian nations to follow IMF prescription for recovery by avoiding protectionism and establishing open, credible financial systems. It also urged all 25 nations to try to strengthen the international financial system to help countries handle economic shocks.
Once Asian leaders get home, they will have to face the realities piling up around them. Nowhere more urgently than in Japan. Prime Minister Ryutaro Hashimoto admitted to the summit that his country is facing one of its worst crises in 50 years. The prescription in Japan's case is not so much the one from the IMF, as the dire warning last week from Mr Ohga. The Sony chief called on Mr Hashimoto to stop wasting time trying to kick-start growth artificially with infrastructure projects; rather, he should attempt to stimulate recovery through tax cuts and incentives to consumer spending.
