European Economy. Economic Papers. Germany's growth performance in the 1990's

2.1.3 Assessment
The description of the monetary policy framework has shown that there was a continuation in
style between the approach chosen by the Bundesbank and that of the ECB. The Bundesbank
has always given clear priority to “safeguarding the currency” and understood this as achieving
price stability targets of the domestic economy. This has often resulted in appreciation pressure
on the DEM as other economies participating in the ERM of the EMS had somewhat higher
inflation rates. This attitude also contributes to the question whether monetary policy has
created a growth supportive framework. On the one hand, the strength of the currency vis-à-vis
other EMS countries helped to achieve price stability while weighing on export volumes. On the
other hand, the appreciation expectations and the de-synchronisation of macroeconomic
developments in the follow-up of re-unification created tensions in the EMS which can hardly
be regarded as growth supportive. In that regard one can have doubts whether monetary policy
has been growth supportive at all times. As regards the first years of Stage III of EMU monetary
conditions have not been an obstacle to economic growth, but it has to be acknowledged that the
one-size-fits-all monetary policy produced greater stimuli to those economies which had much
higher real interest rates before 1998.

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Figure 2.7a:
Contributions to the German MCI
(Average 1994=0 ; inverted scale)
-5
-4
-3
-2
-1
0
1
2
3
Jan-94 Nov-94 Sep-95 Jul-96 May-97 Mar-98 Jan-99 Nov-99 Sep-00 Jul-01
Real interest rate
REER-24
MCI
Figure 2.7b:
Contributions to the Euro Area MCI
(Average 1994=0 ; inverted scale ; fictitious Euro-area up to 1998)
-5
-4
-3
-2
-1
0
1
2
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
MCI
REER contribution
Real i.r. contribution