However, the experience with its working was not satisfactory mainly for two reasons: (i) both the PLR and the spread charged over the PLR varied widely, and inexplicably so, across banks; and perhaps more importantly, (ii) the PLRs of banks were rigid and inflexible in relation to the overall direction of interest rates in the economy.
Over the last decade, the German economy experienced relatively modest wage increases and important productivity gains. Both of these factors contributed to keeping unit labor costs in check. However, another important component of its success came in the form of labor policy reforms.