C.  Risks to the baseline scenario  The baseline scenario for Japan’s economy described thus far is subject to both upside and downside risks. By far the most important risk is uncertainty regarding the outlook for overseas economies, and particularly the European debt problem.
Although concerns about the stability of Spain’s financial system had temporarily subsided thanks mainly to the agreement reached at the EU and eurozone summits, in order to fundamentally resolve the debt problem it is nevertheless necessary in Europe to break the underlying negative feedback loop among fiscal balances, the financial system, and economic activity.