5 / 17  BIS central bankers' speeches  6 / 17  BIS central bankers' speeches  Germany, at the start of Monetary Union, was considered the “sick man of Europe”.
At the time, the country was still recovering from the high costs associated with its reunification and its conversion rate was widely considered to be overvalued.6 The national policy response was a prolonged period of union-backed wage moderation7 together with a significant labour market overhaul which aimed, among other things, at improving job search efficiency and employment flexibility.8 The result was striking: from 1999 to 2008, nominal unit labour costs were virtually unchanged for the economy as a whole (see Chart 8) and were thus growing significantly below what the “golden wage rule” would suggest.9 This resulted in a strong export performance, but weak domestic demand.