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

andreas dombret : current challenges facing central banks – the bundesbank ’ s stance speech by dr andreas dombret, member of the executive board of the deutsche bundesbank, at the ahk ( auslandsaussenkammer ) world conference, berlin, 11 may 2016. * 1. * * introduction dr wansleben, mr machnig, ladies and gentlemen, before i begin, i would like to thank you for inviting me to come here and speak with you today. in germany, foreign trade has traditionally been a cornerstone of its economic success. chambers of commerce abroad make a crucial contribution to the success of german enterprises in foreign markets. you could say that, today, i am visiting the power houses of the german economy, which is why i am so pleased to be here with you in berlin. the motto of this event is : “ where is the global economy heading? ” the answer to this question will be put together like the pieces of a jigsaw puzzle from the various reports of the speakers at your conference, who come from all over the world. within the space of the next 20 minutes, i will try to lay down the foundations for this jigsaw by giving you an overview of the global economic situation. i will also be elaborating on the consequences that this has for monetary policy and for banking supervision in the euro area. 2. economic activity the new year got off to a bumpy start for the global economy, with the economic slowdown in china dampening the new year ’ s spirit right at the very beginning of the year. this was compounded by the sharp decline in oil prices at the turn of the year, which was perceived as having an increasingly detrimental impact on the global economy. furthermore, some financial market players had doubts as to whether an ever more accommodative monetary policy stance can really solve the existing problems. this explains why sentiment on the financial markets was also very nervous at the beginning of the year. the situation has, by and large, calmed down since then, however. according to the international monetary fund, the global economy will continue to recover, albeit at a somewhat slower pace than at the beginning of the year. the major industrial countries remain on a moderate growth path, even though growth in the united states and japan slowed down somewhat in the in the final quarter of 2015 and the first quarter of 2016. nonetheless, the underlying trend is still pointing upwards and developments in the labour markets are not