0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Agriculture, forestry, fishing Manufacture & mining Construction Personal services & transport Financial intermediation & real estate Public sector, etc. Greece Portugal Spain Ireland Italy Eurozone Germany 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 (年平均変化率、%) 労働コスト Greece Ireland Italy Portugal Spain Germany (Annual % change) Labor cost Labor 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) Luxembourg Belgium Germany Cyprus Netherlands Malta Finland Austria France Italy Slovenia Slovakia Estonia Greece Spain Ireland Portugal Fig. 23 Europe’s Net Foreign Assets Fig. 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. Greece Spain Ireland Portugal Italy -20 -15 -10 -5 0 5 10 15 20 25 30 35 2000 02 04 06 Q1 Q3 Q1 Q3 Q1 Q3 Q1 11 (GDP比、%) (期) (年) Other investments Securities investments Direct investments (% of GDP) 2008 2009 2010 Fig. 27 Non-performing Loans Ratios of Ireland & Spain
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Chapter 2, Section 1. European Economies ~ …Chapter 2, Section 1. European Economies ~ Fi nancial Crises and Financia l System Instability ~ European Economies ~ Fi nancial Crises
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
農林漁業
鉱工業
建設
個人向けサービス・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.
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Fig. 26 Export Destinations of Southern European Countries, etc.
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).
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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.
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).