August 2011        

Germany the main beneficiary of ECB policy

Growth in GDP (% per annum)

IrelandGreecePortugalSpainFranceGermanyEuro area
ECB interest rate*
20009.44.53.953. to 3.75
20015. to 2.25
20026. 1.75 Dec.
20034.45.9−− to 1.00
20056. Dec.
20065.44.51.442. to 2.50
20076. to 3.00
2008−3.0200. to 2.00
2009−7.1−2−2.7−3.6−2.2−5−4.11.00 to .25
2010−0.9−30.5− to 1
*Changes during the year.

The countries have all had different growth rates in the last ten years—not suitable for a monetary union.
     The ECB rate has followed developments in the German economy, to the detriment of the other countries, especially Ireland.
     With regard to banking, the banks in the core had surpluses, which they lent to the periphery. The banks in the periphery took the cash and lent it on to their customers, causing an asset bubble and higher inflation
     For the euro to work, a fiscal union would be needed. This would require an amount of approximately 7 per cent of GDP to ensure that countries in difficulties could be bailed out by the EU Commission through a transfer mechanism from the core countries to the periphery.

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