(a) Saving ratios calculated using the average consumption and disposable income levels for each group of households. Numbers in parentheses show their share of total income in 2007. Shares do not sum to 100 due to rounding. (b) High-debt mortgagors are defined as having outstanding mortgage debt of more than twice their annual disposable income. All other mortgagors are low debt. Chart 2: Ratio of UK exports to UK-weighted rest of G7 imports(a) Indices: 2003 Q1 = 100 140 Goods  130  Services  120 110 100 90 80 70  1994  1997  2000  2003  2006  2009  2012  Sources: Eurostat, Japan Cabinet Office, ONS, Statistics Canada, Thomson Reuters Datastream, US Bureau of Economic Analysis and Bank calculations. (a) Chained-volume measures of UK goods (services) exports divided by real imports of goods (services) in Canada, France, Germany, Italy, Japan and the United States, weighted using UK 2011 goods (services) export shares from the 2012 Pink Book. UK goods exports data have been adjusted for MTIC fraud by an amount equal to the ONS goods import adjustment. BIS central bankers’ speeches  7  Chart 3: Net international investment positions (% of GDP) Percentage point changes since 2000 Germany France Greece  Ireland Italy  60  Spain Portugal  40 20 0 -20 -40 -60 -80  -100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012  Source: Eurostat.
Chart 8 indicates, however, that much of that is attributable to the substantial fall in imports associated with the collapse in domestic demand, rather than a rise in exports (although to the extent that there was excess demand before the crisis – as Chart 4 suggests – part of that decline in imports will be warranted). Moreover, the necessary sectoral reallocation of resources is harder to achieve in a currency union than in a country with its own currency, as the exchange rate is not free to adjust to expedite the necessary adjustments in prices and quantities. Absent a supply-side miracle to  2  As productivity tends to rise faster in manufacturing than services, unit labour costs on average rise faster in non-tradables than tradables. But, as Chart 7 makes clear, the gap was much greater in Spain than Germany. 2  BIS central bankers’ speeches  raise productivity in the periphery, the necessary reversal in the movements in relative unit labour costs needs instead to come about through wage and price adjustment, which may require a sustained period of spare capacity in the periphery together with excess demand in the core. There is, however, an inherent asymmetry, noted long ago by Keynes, that when credit flows dry up, adjustment is compulsory for the debtor but only voluntary for the creditor. Moreover, not only does the creditor lack the urgent need to adjust, they may also feel that the debtor ought to bear more of the burden of adjustment on moral grounds.