In 2013, prices rose by an average of 4.5% – a figure that does not give too much cause for concern. Overall, prices in Germany have not yet moved away from fundamentals. For me, warning bells would start ringing if there was a rapid increase in housing prices accompanied by a significant rise in lending.
Sound budgetary positions not only create enough leeway for automatic stabilizers to take full effect over the cycle, they contribute to reducing the debt-to-GDP ratio and consequently the interest burden for governments, increase investors' confidence in the euro area and therefore keep interest rates lower than they would otherwise be.