Die Deutsche Investitionsschwäche und die Europäische Währungsunion - Fakt oder Fiktion? (The German Investment Decline and the European Monetary Union - Fact or Fiction?)

Abstract

This paper shows that, starting with the European Monetary Union, German net capital formation - also with regard to equipment investment - had significantly declined, triggered by a mechanism that has also caused the current European debt crisis. It is argued based on empirical data that inflation differences between the member states of the Monetary Union have caused this development. A theoretical explanation for this relationship is presented. The policy conclusion from this analysis is that the European Central Bank must employ country-specific instruments, like differentiated minimum reserve requirements, to reduce inflation differences between the member states of the European Monetary Union.

Note: downloadable paper is in German

Keywords: EMU-Debt Crisis, Monetary Union, Debt Spiral, Monetary Policy, Fiscal Policy

JEL Classification: E52, E58, E62