( chart 2 and 3 as cited above ). some interesting similarities can be also found in other bubble - related variables. for example, the pace of decline in real estate prices in the u. s. after its bubble burst was almost the same as in the japanese case ( chart 4 ). despite some differences among countries and regions, overall developments in longterm interest rates were similar ( chart 5 ). cross - country similarity was also evident in developments in bank lending ( chart 6 ). the second similarity is initial responses from the authorities and economists. when a bubble is being formed or even soon after it bursts, they underestimate the problem or deny its very existence. in japan, after real estate prices started to decline, people talked about a reversal and subsequent upturn. even after property prices continued to fall for some time, society denied the possibility that the decline would lead to a financial crisis or stagnation of the macro economy. in the case of the bursting of the housing bubble in the united states and the sovereign debt crisis in europe, the initial reaction was also underestimation of the problem. even at a later stage, when experts agreed on the need for public support for financial institutions, such measures met with opposition from the general public, influenced by the lingering effects of the underestimation, which was also seen in the case of japan. in particular, injecting public funds into financial institutions was universally unpopular across countries. likewise, the provision of financial support from core countries to peripheral countries in the euro area is politically unpopular. the third similarity is the policies adopted by central banks ( chart 7 ). in developed countries, short - term interest rates declined to close to zero and central bank balance sheets expanded enormously. since the second half of the 1990s, the bank of japan successively introduced various unorthodox policy measures including zero interest rates, a commitment to maintain zero interest rates, quantitative easing, and the purchase of risk assets, including stocks held by financial institutions. after the subprime loan problem materialized, the u. s. federal reserve adopted various policy measures that were often described as innovative, but in fact many of them are essentially similar to measures previously adopted by the bank of japan. this fact demonstrates the unsurprising truth that central banks act similarly when at the press conference in february 2009, president obama said, “ [ i ] f you delay acting on an economy of this severity, then you potentially create a negative spiral that becomes

potential output has remained flat. potential growth is considerably below that of the euro area and particularly the usa. the problems ensuing from the reunification of germany have undoubtedly also loomed large in the weak growth of the german economy. at the start of the 1990s, for instance, state subsidies ignited a construction boom which petered out in the middle of the decade, not least because public authorities had to curb their investment and overcapacity already existed in the private sector. the subsequent adjustment process is still continuing. the economic dynamics in germany have been additionally slowed by a sharp increase in the level of taxes and social contributions in order to finance the burden of reunification. moreover, the process of interest rate convergence during the changeover to the euro is likely to have been one factor impeding growth in germany in relation to the rest of the euro area. as a result of this convergence germany lost its former interest rate advantages and competition for investment became more fierce. beyond these specific german conditions, a solow growth decomposition shows that labour made a considerably greater contribution to economic growth in the usa compared with germany. apparently, the usa has been more successful in integrating labour in the production process, whereas in germany, high unemployment has left enormous potential output untapped. capacity is not being fully utilised owing mainly to labour market rigidities. however, as i have already mentioned, germany has set the ball in motion in this area - and that is no small feat. the labour market has undoubtedly become more flexible of late both with respect to the institutional framework and as regards collective wage bargaining and working hours. the hope that the economic recovery will later give a fillip to the labour market is therefore well grounded. even so, increasing international competition for investment in manufacturing locations and jobs will mean that the pressure to become more flexible will remain high or even increase further. it is for this reason that additional efforts are needed, particularly in the area of wage structures, to utilise the labour potential which until now has remained untapped. * * * one area where germany is currently still facing considerable problems is public finances. last year the deficit ratio was 3. 8 %, thereby overshooting the ceiling of 3 % set by the ec treaty for the second year in succession. according to our calculations, the bulk of the deficit is of a structural nature and is not attributable to cyclical factors. the debt ratio actually reached an historical high of 64. 2 %. the deficit ratio is likely to show little