0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

農林漁業

鉱工業

建設

個人向けｻｰﾋﾞｽ・運輸

金融仲介・不動産

公的部門等

Agriculture, forestry,fishing

Manufacture & mining

Construction

Personal services& transport

Financial intermediation& real estate

Public sector, etc.

Gre

ece

Por

tuga

l

Spa

in

Irela

nd

Italy

Eur

ozon

e

Ger

man

y

Chapter 2, Section 1. European Economies ~ Stagnant Economies in Southern European Countries, etc. (Greece, Ireland, Portugal, Spain, Italy) ~ Economic recessions in Southern European countries, etc. In the background, fiscal consolidation weighs heavily, with effects of economic structural vulnerabilities. Vulnerable to withdrawals of foreign funds: One cause of domestic demand led growth until 2007 was an increase in capital inflows (Fig. 22). However, behind this

was accumulating foreign debt (Fig. 23). Weaker Competitive Industrial Structure: Internal demand dependent industries have a large share (Fig. 24), not relying on foreign demand. And in an environment

of rising wages, labor costs are rising faster than productivity (Fig. 25). Stagnant productivity: TFP is holding productivity down. This is in an environment of competitive barriers due to entry regulations, etc., and an increase in low skill

laborers. External imbalance becoming constant: Continuing deficit in trade and service balances.

• Low value added products such as foods and textiles have large shares, and weak price competitiveness. In Portugal, Spain and Greece, a large percent of exports are to Southern European countries, and Southern Europe’s recession drags down exports in a vicious cycle (Fig. 26).

After-effects of housing bubble: In Ireland and Spain, households hold high debt levels, and financial institutions face high levels of non-performing loans ratios (Fig. 27).

Fig. 22 Fund Inflows into South Europe, etc.

9

Fig. 26 Export Destinations of Southern European Countries, etc.

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

ｷﾞﾘｼｬ ｱｲﾙﾗﾝﾄﾞ ｲﾀﾘｱ ﾎﾟﾙﾄｶﾞﾙ ｽﾍﾟｲﾝ ﾄﾞｲﾂ

（年平均変化率、％）

労働コスト

労働生産性

Greece Ireland Italy Portugal Spain Germany

(Annual % change)

Labor costLabor

productivity

0

2

4

6

8

10

12

2001 02 03 04 05 06 07 08 09 10

(%)

Ireland

Spain

(Year)-120 -80 -40 0 40 80 120(% of nominal GDP)

LuxembourgBelgiumGermanyCyprusNetherlandsMaltaFinlandAustriaFranceItalySloveniaSlovakiaEstoniaGreeceSpainIrelandPortugal

Fig. 23 Europe’s Net Foreign AssetsFig. 25 Productivity & Labor Costs of

South Europe Countries, etc.(Manufacturing)

Fig. 24 Production Structure in Southern European Countries etc., by Industry

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%その他

アメリカ

その他ＥＵ

フランス

ドイツ

南欧諸国等

Other

USA

Other EU

France

Germany

South Europe,countries, etc.

Gre

ece

Spa

in

Irela

nd

Por

tuga

l

Italy

-20

-15

-10

-5

0

5

10

15

20

25

30

35

2000 02 04 06 Q1 Q3 Q1 Q3 Q1 Q3 Q1

08 09 10 11

（ＧＤＰ比、％）

その他投資

証券投資

直接投資

（期）（年）

Other investments

Securities investmentsDirect investments

(% of GDP)

2008 2009 2010

Fig. 27 Non-performing Loans Ratios of Ireland & Spain

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

France Germany UK USA Netherlands Spain Japan Belgium

($100 million)

6,807(20.7%）

5,070(16.1%)

3,535(8.5%)

1,809(5.2%) 1,581

(11.1%)1,386

(9.0%) 955(3.6%)

To Spain

To Portugal

To Ireland

To Italy

To Greece

786(20.6%)

Chapter 2, Section 1. European Economies ~ Financial Crises and Financial System Instability ~

Agreement on Comprehensive Solution Policies: Despite fiscal reconstruction efforts by the government of Greece and support by Eurozone countries, market concerns about Greece debt crisis were not relieved. In response, the EU Summit and Euro Summit meetings on October 26 & 27, 2011 agreed on 1) Greece support (public support by EU & IMF, etc., and proactive burdens taken by private creditors), and 2) Strengthening of European Financial Stability Facility (EFSF, credit guarantees for each country’s government bonds, establishment of CIF), 3) Bank capital reinforcement, etc.

Increase of Market Concerns: The large countries of Italy and France are also affected. these countries’ bond yields rose. Italy: Amidst continuing low growth, debt balance grew to almost 120% of GDP (Fig. 28). In November, government bond yields jumped, temporarily

exceeding 7% (Fig. 29). Repeated fiscal reconstruction policies were hammered out, but these did not completely eliminate market concerns. Financial System Instabilities: European banks hold many credits to Southern European countries, etc. (Fig. 30). Interbank fundraising environment

makes it harsher (Figures 31 & 32), and European banks’ CDS premiums remain at high levels (Fig. 33).

10

Fig. 28 Italy’s Government Debt & Fiscal Deficit

Fig. 29 Italy Government Bonds (10 Year) Yields Fig. 31 Market Access Environments of Eurozone Financial Institutions

Fig. 30 Major Countries’ Banks’ Outstanding of Claim to Southern European Countries, etc.

0

50

100

150

200

250

300

350

400

450

2010 2011

Barclays

Deutsche BankBNP Paribas

Commerz

Société Générale(bp)

(Month)

Fig. 33 CDS Premiums for Europe Banks

4.50

5.00

5.50

6.00

6.50

7.00

7.50

2011

(Month)

(%)

02468

10121416182022

1 3 5 7 9111 3 5 7 9111 3 5 7 9111 3 5 7 9111 3 5 7 92007 2008 2009 2010 2011

(% of total bank assets)

Ireland

Portugal

Spain

Greece

Italy

(Month)

-30

-20

-10

0

10

20

30

40

50

60

70

Q3Q4Q1Q2Q3 Q3Q4Q1Q2Q3 Q3Q4Q1Q2Q3 Q3Q4Q1Q2Q3

2010 11 2010 11 2010 11 2010 11

(%)Short term interbank market Short term

bond market

Medium & long term bond markets

Harsh

Relaxed(Year)

Very short term interbank market

-6

-5

-4

-3

-2

-1

0

1

90

100

110

120

130

2005 07 09 11 13 14

(% of GDP)(% of GDP)

General government debt

Fiscal balance(right scale)

(Year)

Govt. fiscal reconstruction proposal

Forecast

Fig. 32 ECB’s Liquidity Provision Outstanding

Chapter 2, Section 1. European Economies ~ monetary policy Under Pressure and Difficult to Steer ~

European Central Bank (ECB): In November 2011, the policy interest rate was lowered to 1.25% (Fig. 34). This was the first interest rate decrease since May 2009. The reason given was that

medium term inflationary pressures could decrease. On the other hand, consumer price index was far above 2%.In August, ECB resumed the government bond purchase program, and provided liquidity for 6 months. In October, liquidity provisions for 12 and 13 months were

determined. Thus it was decided to make 40 billion euro of covered bond purchases. Since August, government bond purchase amounts increased quickly (Fig. 35).

Bank of England (BOE):Consumer price index was far above the BOE’s target, but assuming that inflation was due to temporary causes such as VAT, the policy interest rate was left at 0.5%

(Fig. 36).In October, it was decided to increase the purchase ceiling for government bonds by 75 billion pounds, to 275 billion pounds (Fig. 37).

Fig. 34 Eurozone’s Consumer Price Inflation & Policy Interest Rates

11

Fig. 36 UK’s Consumer Price Inflation & Policy Interest Rates

Fig. 37 BOE’s Balance Sheet

0

500

1000

1500

2000

5 6 7 8 9 1011 12 1 2 3 4 5 6 7 8 9 10 112010 2011

(100 million euro)

(Month)

-1

0

1

2

3

4

5

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 112008 2009 2010 2011

(Month)

(%)

HICP (core)(Year on Year)

HICP (comprehensive)(Year on Year)

Policy interest rate

0

500

1,000

1,500

2,000

2,500

3,000

2008 2009 2010 2011

(100 million pounds

Foreign currency assets, otherLoans to government, government bonds, etc.

Operations≥ 3 months

Operations(< 3 months)

Government bonds etc. acquired in asset purchase program

(Month)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2006 07 08 09 10 11

(Year on Year, %) (%)CPI

CPI (excluding effects of VAT tax rate change)

Policy interest rate(right scale)

(Year)

Fig. 35 Outstanding of Government Bonds Purchased by ECB