##ism debate which should not, under any circumstances, be allowed to drive a wedge between our two countries. and in closing, i will also touch upon the challenges facing the united states and germany alike. but let me begin with an account of the economic situation on both sides of the atlantic. 3 economic activity both germany and the united states have been enjoying one of the longest periods of expansion in post - war history. the upswing that kicked off in 2009 is as intact as ever, despite what the less - than - unanimously - positive economic reports for germany in recent months might suggest. various institutions are in the process of revising their growth forecasts downwards for a number of countries, many of them reportedly spooked by the spectre of uncertainty raised by the trade conflicts. the bundesbank recently dedicated an article in its october monthly report to examining the macroeconomic effects of uncertainty in greater detail and came to the following conclusion. 2 / 8 bis central bankers'speeches while it is true that uncertainty noticeably depressed economic activity during the global financial crisis ten years ago, there is no evidence that it has been dampening growth in the more recent past. so the relationship between uncertainty and the real economy is not as clear, or as close, as is often supposed. this view is supported by the fact that global activity was not affected by the brexit referendum or by various political developments in europe and the united states. the current imf staff projections expect the global economy to expand just as strongly in 2018 and 2019 as it did last year. it ’ s striking to note that the imf staff left their projections for the current year unchanged for the united states and china in particular – the protagonists in the trade conflict. i find that hard to reconcile with the theory that major uncertainty effects are at play. projections were instead downgraded significantly for a number of emerging market economies in particular on account of country - specific vulnerabilities. these weak spots are becoming increasingly telling, because as the united states normalises its monetary policy stance, the emerging market economies as a whole are finding it more and more difficult to attract investors. however, at present, there is no question of a looming large - scale emerging markets crisis. the imf staff are expecting activity in germany, and in the euro area, too, to expand by around 2 per cent this year and next, and are forecasting an even stronger rate of growth for the united states. joblessness in germany has fallen to its lowest

years. these included, most notably, excessive lending, asset price bubbles and a loss of competitiveness. these structural problems were the breeding ground for the sovereign debt crisis. the actual weak link at the launch of our monetary union, however, was the combination of a single monetary policy and a decentralised fiscal policy. monetary policy, as you know, is set at the european level – by the european central bank. on the other hand, responsibility for fiscal policy rests with the individual member states, i. e. at national level. however, in a currency area where fiscal policy is decentralised, the member states have a relatively large incentive to borrow. if a country accumulates more and more debt, it does not face the consequences by itself as these are spread across the entire currency area – for example, through rising interest rates. bis central bankers ’ speeches the founding fathers of our monetary union therefore created a framework of rules to prevent, or at least correct, such unsound developments : the stability and growth pact. this was intended to keep national fiscal policies in check. one of its tenets was that annual government budget deficits may not exceed 3 % of gross domestic product. the penalties for breaching this deficit limit could be escalated all the way to financial sanctions. there is one more key building block in the edifice of the euro area alongside the stability and growth pact : the no - bail - out principle, which forbids member states from assuming liability for the debts of other member states. the guiding principle of monetary union was therefore individual responsibility : member states ’ individual responsibility for the consequences of their policies and financial market agents ’ individual responsibility for the consequences of their investment decisions. despite these rules, however, member states ’ borrowing has not been effectively contained. why not? mainly, because the rules of the stability and growth pact were not only circumvented but even stretched to its limit. this was possible thanks to a crucial flaw in the system : countries that violated the deficit limit were not automatically punished. instead, the other member states voted on a sanction. this, of course, encouraged an attitude of “ i won ’ t punish you today if you don ’ t punish me tomorrow ”. looking back, it must also be noted that the financial markets did not exert the desired disciplining effect on fiscal policy. investors turned a blind eye to the misbehaviour of some member states for far too long. by the time the interest