First, financial institutions will have to raise the quality, consistency and transparency of capital. Tier 1 capital should be predominantly composed of common shares and retained earnings to increase its loss-absorbing capacity. A common definition of capital and appropriate disclosure of its components will be internationally established. This will contribute to increased transparency and comparability.
Moreover, German economic activity is being bolstered by consumption – unemployment is low, households are not burdened by excessive debt and real wages are rising appreciably owing to low inflation. In the Bundesbank’s December projection, we forecast that Germany’s real gross domestic product would rise by 1.0% this year and 1.6% next year.