. does this impede as sometimes, mainly during election campaigns argued, a country ’ s ability to adjust to asymmetric shocks? the case of germany helps to answer this question. in the past years germany has made it from the bottom of the euro area growth table to a good positioning in the emu growth chart. why is this? the growth gap during much of that time was notably. average growth in the years 2001 to 2005 added up to only 0. 6 % p. a., which is clearly below germanys potential growth rate of 1 ½ % p. a.. this slow growth and the unsatisfactory placement in the european growth chart was partly the result of other economies catching up economically and of the stimuli generated by interest rate convergence in some member states during the run - up to emu. domestic problems caused the main part of the subdued growth, however. among other things the very quick catching - up of wages in the eastern part of germany and structural weaknesses in the labour market led to a weak domestic demand and economic performance. it was only gradually that the german economy emerged from this difficult situation. firstly, the adjustment was supported by the fact that price dynamics in germany have been more moderate than in most other emu countries. on average the german hicp was 1 % - point lower than the average hicp of the other member states of the monetary union. this led to a cumulated price advantage of 8. 5 % since 1999. measured in terms of unit labour costs, german industry gained an advantage of 15 % since 1999. at this point one sidestep : it ’ s sometimes argued that higher inflation rates support growth because lower real interest rates foster investment activities. this is wrong for two reasons : firstly, if calculating real interest rates, one has to consider inflation expectations which are not considerably lower in germany than in other countries of the monetary union. secondly, and this is a much stronger argument, the case of germany shows that modest price dynamics support competitiveness within a monetary union and therefore foster sustainable growth. oecd, economic survey, euro area, 2007, p. 31. secondly, beyond or parallel to the stability performance deep and sometimes painful restructuring effort of the industry was necessary during the process of catching up. this include modest wage developments and strong cost saving and restructuring efforts in the last ten years. thirdly, the legislator launched overdue structural reforms. among other things the system of unemployment benefits as well as the pension scheme was reformed

stage compared to the current situation in other latin american countries. hasty diagnosis and simplistic comparisons among the various countries ’ situations may lead to inappropriate policy recommendations. under these circumstances, a sustainable and long - lasting reduction of inflation depends on the comprehensive, joint and coordinated action of the monetary policy, the fiscal policy, the wage policy, and the competition policy during the transition phase. the path is a sequential one while we build the traditional monetary tools as effective policy instruments. within this framework, today ’ s monetary and financial strategy is based on three main pillars : first, a robust and consistent monetary policy that ensures the equilibrium between supply and demand in the monetary market. this system is the most appropriate for an economy that still makes intensive use of relatively liquid means of payment and has a relatively low bank penetration. for the first time after the crisis, money supply is growing below the growth of nominal gdp, reflecting the prudential bias of our approach. the control of the growth in m2 is based upon a deep sterilization policy, which its key element is the issuance of bills and notes of the central bank and the development of a repo market. and these securities are by no means straight public debt ( the central bank is not using them to finance itself ). they reflect postponed liquidity ( they will be monetized when circumstances require so as it happened in the second half of 2007 ). second, a managed floating exchange rate regime that enables us to weather situations of financial stress – that is, a regime that provides predictability. we do not want to prevent variables from converging to their long - term values, but we would rather avoid excessive volatility as a source of unnecessary disturbances in economic decisions. on the other hand, we do not want to provide any sort of insurance that favors speculative flows. third, countercyclical policies to prepare the economy against shocks. these include the accumulation of foreign reserves and a sound financial system that buffers turmoil, instead of spreading it. i cannot find a more telling proof of the reasons why we have pursued antyciclical policies – such as foreign reserve accumulation – during these years : the recent external shock we faced can be compared to the “ tequila effect ” in terms of the magnitude of the outflows, but had a mild impact on domestic variables. the monetary and financial system truly protected it against financial contagion. another example of our risk management approach is the recovery of banking liquidity and solvency