. in 2001, taken on its own, the figure was as much as 1½ percentage points. in my view, both temporary and long - term factors have contributed to germany's relatively poor performance in the euro area. as far as the temporary factors are concerned, it should be remembered that, already in the run - up to stage three of european monetary union, interest rates had fallen sharply in a number of eu countries with previously fairly high short and long - term rates of interest. for example, interest rates for long - term government bonds in italy and spain, even in 1995, were 5 to 6 percentage points higher than the rates for german federal bonds. as the home of the former anchor currency in the erm, germany did not benefit directly from this process of interest rate convergence. another cause of relatively weak growth in germany is the crisis in the construction industry, especially in eastern germany. in this sector, the capacity built up immediately after reunification exceeded the longer - term ability of the real estate market to absorb it. reduced construction activity depressed german economic growth. without the decline in investment in construction since the mid - 1990s, the shortfall in german growth compared with the euro area as a whole would therefore not have been as great. by contrast, construction activity in other european countries has remained an important mainstay of economic growth. consideration also has to be given to the fact that living standards in the monetary union are still very disparate. since the poorer countries are supposed to catch up with the emu average, they have to go on growing more strongly than those countries which have already achieved a high level of income. one very important – if not the most important and continuing – reason for the inadequate pace of economic growth in germany is the heavy burden of taxes and social security contributions. added to this are strict regulations in some parts of the economy. above all, there is too little labour market flexibility in germany. in periods of a cyclical downswing, the rise in unemployment in germany was far sharper than the fall during periods when there was an upturn. for instance, the number of people out of work in western germany rose from its cyclical low point between 1991 and 1997 by some 1. 3 million to around 2. 5 million. by 2001, the number of unemployed had been reduced by no more than just over half a million. in germany, the incentives to take up employment are restricted by the high - level marginal burden imposed by taxes and other public levi

are to be expected on that front either. german companies rely mainly on bank loans. and bank loans to the domestic private sector have shown hardly any further increase during the past few months. in september, they were only 1 % up year over year. in actual fact, there are some indications that banks are showing a certain amount of restraint in their lending. in addition to narrow margins in lending business, the very high number of business insolvencies and the fact that many enterprises have a low level of capital is likely to have played a part in this. the quality of banks ’ loan portfolios has deteriorated. however, our empirical studies have also clearly revealed that the cause of the weak credit growth in germany lies not so much in the banks ’ behaviour as in the situation of the economy as a whole. this means that the marked slowdown in credit expansion is mainly the outcome of a cyclically induced subdued demand for credit. in my view, the currently weak development of credit cannot therefore be cited as evidence of a general credit crunch in germany. allow me now to come to my third point and make a few remarks on the insurance companies. the insurance sector in germany is one of the most important institutional investors. in june 2002, the financial assets of the entire sector amounted to almost 1000 billion € at book values. more than onethird of that amount was invested in the capital markets. by far the largest part of that figure was invested by life insurance companies, which – at the end of the first half of 2002 – had equities ( excluding participating interests ) and mutual fund shares to the amount of €160 billion. life insurance companies have invested 20 % of their financial assets in equities. the fact that share prices have now fallen by around 60 % from their peak in march 2000 has led to a significant fall in insurance companies ’ overall earnings and thus also to a reduction in capital bonuses for policyholders. so far, however, this has not generated any destabilising effects on the capital market. even in 2002, insurance companies have still been making new investments of around €12 billion net in equities and mutual fund shares. moreover, the insurance companies have a major self - interest in protecting the entitlements of their clients. they have has therefore established a rescue company for failing institutions, although – up to now – this company has not had to take any action. the extensive depreciation requirements due to the significant shares losses have been mitigate