The loss of competitiveness put Germany in an extremely unfavourable position on international markets. Consequently, the corporate sector responded with a painful, but eventually successful, restructuring process which included innovation, outsourcing, wage moderation and a balance sheet clean-up. The German government was also forced to act.
Just after the turn of the millennium, the burst of the “New Economy” bubble caused an economic downturn and led to a protracted period of meagre GDP growth: unemployment was persistently high while overburdened social security systems led to big fiscal deficits. In 2003, bold labour market reforms were introduced.