Germany and the financial crisis: challenges and opportunities

to this day, the Berlin airlift of the years 1948/49 continues to be an impressive monument of the solidarity between the United States and Germany which started after World War II. For this friendship to prosper, the intellectual and cultural exchange between the two countries has been very important. The American Council on Germany in New York as well as its German counterpart the Atlantik-Brücke have, since their incorporation in 1952, contributed largely to a better understanding between the two countries both in political and in economic affairs. Therefore, I am very honoured by the invitation of the American Council on Germany to give a speech about challenges and opportunities facing the German economy in the aftermath of the financial crisis.How would I have assessed the economic situation in Germany, had I given this speech six years ago? In fact, my assessment would have been quite dire. In spring 2004, the German economy was just about to turn the corner after three years of stagnation. However, the relief about the first signs of economic recovery was clouded by obvious structural problems. Whereas the cyclical upturn was sustained primarily by stimuli to German exports stemming from a buoyant world economy, there were hardly any signs of a broadly based and self- sustaining upswing, not least owing to high structural unemployment and depressed private consumption. In addition, the fiscal deficit was expected to exceed the Maastricht Treaty's deficit ceiling of 3% for the third year in succession, hence limiting the scope for fiscal action. Policymakers were well aware of the seriousness of the situation, and economic and social policy reforms had been already initiated. However, strong headwinds in pushing through those reforms were to be expected.download