Independent of the two-pillar strategy of the ECB overall development of the EMU conceals different developments in different member states. It would overburden this short book to cover all EMU countries in detail, so we have chosen to concentrate on the larger countries Germany, France and Italy, as well as on those countries which were the focus of attention after the outbreak of the financial market crisis (Greece, Ireland, Portugal and Spain, which together with crisis-ridden Italy are referred to as the PIIGS countries).

Interest rates, asset bubbles and GDP growth

A look at the real GDP growth rates before 2008 shows that Germany did not perform very well in the first phase of the EMU compared to other countries (see Figure 7.1). If one takes the real GDP in 1998 as the basis, then the German real GDP rose by 15.1 per cent up to 2007. Only Italy with 14.2 per cent fared worse. Portugal also counts among the group of countries with low growth with 17 per cent. In contrast, Ireland with 73.3 per cent, Spain with 40 per cent and Greece with 41 per cent experienced strong growth in real GDP for this period. The middle group during this period included France with a growth rate of 22.5 per cent, Austria with 25.4 per cent and the Netherlands with 25.7 per cent. By way of comparison the United States achieved growth of 29.8 per cent (OECD 2020).

The different growth rates result from the different macroeconomic regimes that prevailed in the respective countries. A first indication is provided by the development of long-term interest rates. Figure 7.2 shows the interest rates of government bonds with a ten-year maturity. These serve as a reference for longterm loans to the private sector, which usually has to pay slightly higher interest rates. Long-term interest rates are important for corporate investment and for household real estate purchases. Germany had the lowest interest rates before the start of EMU, as the D-Mark was the leading currency in the EMS (see Chapter 2).