their capacities rather than just replace existing equipment. housing construction is expected to go on benefiting from historically low funding costs, whereas public investment is expected to drop sharply given the phasing - out of stimulus programmes and the considerable need for consolidation. even private consumption is providing us with some good news. having been sluggish in the past upswing and resilient during the crisis, it showed perceptible growth of 0. 4 % in 2010. the very positive household sentiment indicates that the upward trend will become even stronger both this year and next. what underlies this remarkably positive household sentiment? quite obviously, it is the improved labour market situation and, hence, higher labour income expectations. consumption activity might suffer, however, from the significantly gloomier price climate that will probably continue over the next few months. according to the flash estimate, the annual inflation rate ( hicp ) rose to 2. 2 % in february. even though this is clearly lower than the bis central bankers ’ speeches current uk inflation rates, it is the highest figure since autumn 2008. the price climate has therefore deteriorated, although it should not be forgotten that, up to now, this has been due mostly to exogenous shocks, particularly from energy prices. we expect the german economy to grow on average in 2011 considerably faster than the 2 % we projected in early december : 2½ % should be a realistic figure as things stand at present. as a result, the german economy should regain its crisis - related losses in output by about the end of this year. there will be a further decline in unemployment owing to companies ’ marked willingness to recruit new staff. the fall in unemployment in germany is not just cyclical, however. germany is currently reaping the benefits of the sometimes painful reforms introduced over the past decade. this teaches us the important lesson that reforms pay off. furthermore, robust employment during the crisis was the dividend of greater flexibility in german wage agreements and was also supported by temporary government measures such as the shorttime working, which proved to be an attractive option. this is not to deny that major challenges remain : the reforms have tended to reinforce the segmentation of the labour market, and unemployment among the low - skilled as well as long - term unemployment remain at a high level. nevertheless, current data are impressive : at a rate of 7. 3 %, german unemployment is now below its pre - crisis level, and the average number of employed persons was at its highest ever in 2010

structured in a manner than is compatible with stability. not surprisingly, it is precisely in those countries which face acute financing problems and a severe loss of confidence in their own fiscal policies that the cries for joint liability are the loudest and the most emphatic. the support we are seeing from the european institutions, which, by their very nature, advocate greater centralisation at the european level, is just as understandable. it is, however, worth noting that the advocates of joint liability are often in those countries which are the most opposed to surrendering their national sovereignty with regard to financial policy decisions. it is clear that joint liability holds the promise delivering benefits and extending a country ’ s scope for action, whereas fiscal union could restrict the scope for action at the national level. as understandable as such a stance may be, a stable union cannot be founded on this basis. my impression is that germany is much more open with regard to the issue of surrendering national sovereignty than many partner countries. in order to establish a stability - oriented fiscal union, it is my firm belief that it is imperative for the euro - area countries to summon up two things first, the willingness to submit themselves in a binding manner to strict budgetary rules. second, the willingness to hand over sovereignty in some areas to a central level that effectively monitors compliance with the rules and, above all, can enforce them. consequently, although not necessary, it would be acceptable to bear risks to a certain extent jointly. in this context, the sequence in which the steps are taken is crucial. if we were to reverse the order, there would be a risk – if not, in fact, a strong probability – of the second step never being taken or, at least, not being taken properly. but how might a stability - oriented fiscal union be structured? there are, of course, a large number of options for this, all depending on how far competencies are shifted to the european level, revenue and spending powers are centralised and transfer elements are extended. i wish to assume the status quo ; in other words, as much subsidiarity as possible in the form of national fiscal responsibility and the fiscal objectives, as set out, for example, in bis central bankers ’ speeches the stability and growth pact and in the fiscal compact. and it is on this basis that i would like to outline a number of minimum requirements for a stability - oriented fiscal union. this minimal approach has the advantage that it allows a broader range of