regional, still today euro area housing markets and housing finance are still structurally heterogeneous. there is considerable heterogeneity, for example, in loan characteristics, such as typical interest rate fixation periods, maturities, amortisation requirements and loan - to - value ratios ( slide 4 ). the housing market cycles are also quite country - specific. however, the latest financial crisis hit all markets by and large at the same time, albeit with differing force. now the recovery from the crisis has continued and is becoming more broadly based across countries ( slide 5 ). bis central bankers ’ speeches the rebound in house prices has been strong in several countries ( slide 6 ). the european central bank ’ s estimates of potential over / undervaluation of house prices suggest that while euro area house prices are, on average, broadly in line with fundamentals, some pockets of vulnerability do exist ( slide 7 ). the recovery in house prices and lending has been supported by an improving economic outlook and more favourable financing and lending conditions ( slides 8 – 11 ). however, developments continue to diverge both at country and regional level. housing markets and finance are heterogeneous across the nordic countries, too, albeit these economies are in many other respects quite similar to each other. structural differences exist between countries with respect to lenders ’ business models, typical loan products and the level of household indebtedness ( slides 12 – 13 ). the four countries are also in different phases of their housing cycles, with real house prices rising fastest in sweden and norway ( slide 14 ). some specificities in finland in finland, housing lending is one of the key business segments of universal banks, and the loan market is dominated by the three largest banks. average maturities of housing loans are short in nordic comparison, and non - amortising loans are almost non - existent ( slide 15 ). loans are predominantly tied to variable interest rates and funded mainly by deposits and, increasingly, by covered bonds ( slides 16 – 18 ). over the past 5 years there has been a soft, if lengthy landing in the finnish housing market, reflecting the protracted economic downturn. the housing loan cycle in finland is now passing its second trough after the burst of the global financial crisis ( slides 19 – 22 ). the average interest rate on new housing loans has reached a record low, being the lowest in the euro area ( slides 23 – 25 ). yet, growth in housing lending is only slowly

growth to be between 0. 5 % and 1 % in 2010 and between 2 % and 2. 5 % for 2011. we therefore see some light at the end of the proverbial tunnel but one is not sure how helpful this new found optimism would be for the manufacturing sector. although the sector is estimated to have expanded by 1 % during the first quarter of 2010, the bank is forecasting a decline of nearly 4 % for the sector in 2010, following a fall of nearly 13 % in 2009. it goes without saying that the revised projection is largely predicated on the performance of tourism, as the sector ’ s performance has a spill - over effect on several industries, notably wholesale and retail, transportation and construction activity. various reasons have been suggested for the continued weaknesses in the manufacturing sector. these include : ( a ) high cost of production, particularly for energy, and hence the inability of the sector to compete with regional and international products. ( b ) low productivity, partly due to the adoption of relatively inefficient processes which in turn may be attributed to. ( c ) the continued reliance on aging and obsolete plants. a few years ago i read an article about the us auto industry. the author was trying to explain why the us industry was becoming increasingly unable to compete with its asian competitors, during the period from the mid 1980s to 1990s. the indicator used by the author was the labour - income ratio. this is the proportion of value added that goes to wages and fringe benefits. if that ratio goes above a certain threshold, apparently between 80 % and 85 %, productivity declines and capital formation falls too low to maintain present jobs, let alone create new ones. the author intimated that the us auto industry was operating with a labour – income ratio of between 85 % to 90 %. in contrast, the germans and japanese auto makers were operating on labour – income ratio of 75 % to 80 %. it was not surprising therefore that the germans and especially the japanese auto industry gained significant market shares at the expense of the us auto makers in the us market. the fact is that the labour – income ratios of 85 % to 90 % made capital formation impossible as us companies were barely able to generate or raise the investment capital needed to modernize their plants and convert them to the production of fuel efficient cars. we should recall that only recently general motors had to be supported by the us federal government, otherwise the company would have collapsed. it is my considered opinion that the manufacturing sector