A marked reduction in the growth potential in the euro area’s biggest economy would be a burden for the overall state of the euro area economy. It could also translate into lower long-term interest rates in the monetary union. This in turn would not make matters easier for monetary policymakers.
Germany’s balanced budget, saving decisions or, more broadly, its current account surplus as a consequence, is largely driven by demographic considerations. But what makes sense from a domestic perspective might spell trouble for the euro area and the world at large, as it might detract from international demand. This is a worry voiced by some observers, the IMF among them. Are these worries valid?