the german economy remains in good shape. this is due to a number of factors. first, enterprises have brought their costs under control, their debt level is not unreasonably high, and they have an attractive range of products to offer on global markets. correspondingly, exports have been rising quite strongly. second, the german economy is being supported by domestic consumption, and – at least in the last quarter – by investment. in addition, unemployment is low, households are not burdened by excessive debt and real wages are rising on account of low inflation. the german economy grew by 1. 6 % in real terms in 2014. however, the relative strength of the german economy at present should not obscure the fact that major challenges lie ahead and that this favourable position is not assured in the long run. in particular, unfavourable demographic trends will have an impact on future growth. the bundesbank estimates that potential output is currently growing at a rate of 1 % per year and will continue to do so until bis central bankers ’ speeches the end of the decade. compared to the 1990s and 2000s this is a truly underwhelming figure. looking ahead to the distant future, germany will be near the bottom of the league table for growth by international standards. studies conducted by the oecd show that, by 2060, germany will have grown at the slowest rate of all 42 countries surveyed, primarily as a result of the demographics - driven decline in the number of hours worked. with an annual trend growth rate of just over 1 % by 2060, the oecd predicts that germany will grow only half as quickly as the united states. as measured per capita, however, germany and the us are expected to grow at a similar pace, by 1. 5 % per year by 2060. so, what can germany do to improve its growth prospects in the long run? one frequently voiced proposal these days is that germany should step up its investment as a lever for increasing its own growth potential as well as that of the euro area as a whole. indeed, the total real investment ratio in germany was markedly lower in the 2000s than in the 1990s. and it was also lower than in the rest of the euro area. nevertheless, weaker investment in the last decade was largely the result of the construction boom in the late 1990s which followed german reunification. if construction is excluded from the investment ratio, germany ’ s situation is no longer any different from the rest of the euro area

board their primary objective was price stability – defined as a stabilisation of the inflation rate at around 2 % across a horizon of approximately two years. steering short - term interest rates was considered a sufficient means of achieving this target. central bank forecasts played a key role in monetary policy decision - making, with monetary aggregates increasingly taking a back seat in many forecast models. furthermore, capital markets were mostly assumed to be efficient, meaning that financial imperfections and their potential macroeconomic effects were not taken into account. see a a weber ( 2007 ), from academic to policy maker, cepr - cepremap lectures on policy making, paris, 29 may 2007. see c bean, m paustian, a penalver and t taylor ( 2010 ), monetary policy after the fall, jackson hole 2010 symposium proceedings, federal reserve bank of kansas city. bis central bankers ’ speeches temporary inefficiencies, such as asset price bubbles, were considered possible, but the majority view was that monetary policy could do little to counteract such developments. microprudential supervision was regarded as a sufficient means of containing risks in the financial sector. monetary policymakers should intervene only after a financial crisis had occurred, minimising the macroeconomic damage through resolute interest rate cuts. even though monetary policy proved indispensable and highly successful in containing the crisis and in preventing a meltdown of the financial system, events have cast doubt on this consensus. the question now is whether, and to what extent, monetary policy should take account of financial market developments before a crisis occurs. 3 let me elaborate on some aspects of this in greater depth. 2. 1 a stronger role for financial markets in monetary policy analysis … given the genesis of the crisis, it is undeniable that monetary policy with too short a policy horizon can fail to take account of financial imbalances that eventually spill over to the real economy, thus jeopardising price stability. so, how should monetary policy incorporate the experience of the crisis into its decision - making process? in the pre - crisis phase, monetary policy decisions were often based on models in which the financial sector played only a minor or no role at all. therefore, an obvious and important lesson from the crisis is that the theoretical and empirical foundations of monetary policy must place a greater emphasis on both the banking sector and financial imperfections. as regards the eurosystem ’ s monetary policy strategy, the monetary pillar already contains major elements of such an