And the adjustment took longer because of the lack of implementation and prevailing uncertainty (including in the rest of the euro area). With hindsight, the programme could have been designed to be more conducive to growth. For example, the opening-up of the product market has lagged wage cuts, protecting rents and making the burden of adjustment fall heavily on workers.
Which brings us to the biggest challenge facing the German banking sector: it appears to be suffering from weak profitability. Supervisors also have a problem with this, as banks’ low profitability limits their ability to retain earnings and build up equity.