IfW in the News

The dark side of Germany's economic boom


Stefan Kooths explains, why the German boom also means a risk for the economy

Excerpt from the article

(...) For eight years, Germany's economy has been expanding while unemployment has been falling and incomes and tax revenue have been rising. All the while, consumer prices have risen modestly. For the country once famously labeled the sick man of Europe, it's been an impressive revival. But that doesn't mean the good times will continue forever. In fact, many economists are starting to issue a warning: Don't be dazzled by Germany's new economic miracle.

"If you think a booming economy is harmless as long as consumer prices don't get out of control, you're wrong," said Stefan Kooths at the Kiel Institute for the World Economy ( IfW ). "The boom carries in it the seed of a crisis."

Part of the concern goes back to the rather well-worn German fear about loose monetary policy, something Germany's Bundesbank has been towing the line on for years. Mr. Kooths explained that the money being poured into the economy since the financial crisis by the European Central Bank was making investment plans and business models appear profitable that, on close inspection, prove not to be. As positive as the boom might seem, it's also dangerous, particularly as it has been fueled by interest rates that are far too low.