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09 November 2011

German Council of Economic Experts Annual Report: "Assume responsibility for Europe"


The German Council of Economic Experts – GCEE (Sachverständigenrat) has decided to compute alternative scenarios for Germany's cyclical development in the coming period. If the sovereign debt crisis is not contained, this will have a considerable impact on the German economy's external sector.

Europe's economic policymakers face momentous challenges. The sovereign debt crisis in the euro area, which was initially confined to Greece, widened and deepened into a crisis of confidence. Amid mounting mutual mistrust among banks, lending on the interbank market largely dried up and the situation on the financial market recalled the dark days of 2008 that followed the collapse of Lehman Brothers. The nervousness was heightened by a widespread lack of confidence in the politicians' ability to tighten rigorously and vigorously the fiscal reins. Leaders in many countries, facing the unalterable necessity of consolidating public finances, were additionally confronted with the dilemma that pursuing a restrictive budgetary course might magnify the economic slowdown. As a result, monetary union is now trapped in a vicious circle of an interlocking sovereign debt crisis and a banking crisis.

In this daunting setting, the German economy has remained remarkably robust in 2011. Gross domestic product (GDP) will probably grow by 3.0 per cent this year but then slow perceptibly to 0.9 per cent in 2012. The labour market has performed especially strongly. The annual average number of officially unemployed persons in 2011 stands at 3.0 million, which is the lowest level in a decade. It is likely to fall further to 2.9 million in 2012.

Germany has a particular responsibility in overcoming the euro crisis. After many calls had been made for the country to act as lead firefighter, German policymakers eventually assumed this role with the economic initiatives taken at the euro summit of 26 October 2011, where German pressure was instrumental in the adoption of extensive measures to combat the crisis. The necessary inclusion of such a European dimension was, by contrast, largely lacking in the German government's abrupt change of course in energy policy.



© German Council of Economic Experts


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