of smaller, export - oriented countries, while some peripheral countries are lagging behind, both in terms of gdp growth rates and of unemployment rates. although this divergence is of course worrisome, we should not immobilize ourselves by focusing on the problematic cases alone. if we do, we might forget that on average the performance of the eu economy was good – both during and after the crisis. the flexible way in which many countries reacted to the unexpected events was certainly facilitated by the past progress of european integration, which was accompanied by structural progress and an intensification bis central bankers ’ speeches of trade. the remaining divergence in economic development, however, is in my view a clear mandate to further reduce the institutional heterogeneity of economic governance. in order to shape the new institutional landscape in the best possible way, it is useful to look back for a moment and analyze the trends and conditions that made a crisis of this size possible. a correct account of the crisis period is not only important for economic historians. it is even more important for today ’ s policymakers as it enables them to identify the main weaknesses and to tackle them in an adequate way. in many respects the chronology of the recent contraction has followed the prototypical sequence of events characteristic for severe financial crises. the main preconditions were a number of slowly emerging disequilibriums on the real side of the economy, accompanied by suboptimal behavior and regulation in the financial sector. these real factors include, for example, the global imbalances that led to the “ paradox ” financial flows from emerging to advanced economies. this caused a relative abundance of available funds in the advanced economies, which was further amplified by a rapidly growing financial industry and a period of rather low global interest rates. these elements, among others, contributed to an increase in household indebtedness and to low private savings rates. the financial sector, on the other hand, was eager to satisfy the demand for apparently safe assets by designing and selling exotic products. at the same time, one could observe a deterioration of lending standards, excessive leverage ratios and the extension of management contracts that favored shortterm behavior and excessive risk - taking. in the financial crisis, all of these factors worked together to cause a massive fall in asset prices, a wave of fire sales and an almost complete breakdown of the interbank market. these turmoils in the financial market then led to a loss of confidence in the real sector and

. s. stock market. subsequently, they recovered reacting to the rebound in u. s. stocks and have returned to the level of above 19, 000 yen. in the foreign exchange market, the yen once appreciated to the 101 - 102 yen level against the u. s. dollar at the beginning of the year, but then depreciated and is currently being traded in the range of 105 - 107 yen. with regard to corporate finance, private banks have basically retained their cautious lending attitude. however, constraint that had been caused by severe fund - raising conditions and insufficient capital base has eased considerably. under these circumstances, major banks are gradually becoming more active in extending loans, while carefully evaluating the credit risks involved. however, credit demand for economic activities such as business fixed investment remains weak. in addition, firms continue to reduce debts as part of their balance - sheet restructuring measures. as a result, credit demand in the private sector has continued to be basically stagnant, and thus private banks ’ lending has remained sluggish. issuance of corporate bonds and cp has been steady at present. the growth in money stock ( m2 + cds ) has slowed somewhat reflecting the stagnant private credit demand. in this financial environment, the financial position of firms is easing, and the lending attitude of financial institutions as perceived by firms is becoming less severe. it continues to warrant careful monitoring how these favorable developments in corporate financing environment will affect economic activities.