The German economy and the Fed

gerflagThe US – Federal Reserve could be compared to the Bundeszentralbank, the “German Central Bank”. Its job is to monitor the value of the Euro and ensure its stability. Unlike the Fed, it is not responsible for unemployment rates. As the economically strongest nation in the European Union, Germany is an important player in the Eurosystem, where the all EU nations central banks are united. The Control Centre of Europe’s Economy, however, is the ECB, the European Central Bank. Its role is to control the interest rates. Since so many different countries with different economic situations are part of the EU and the Eurosystem, it is often hard for the ECB to find an economic balance. Germany’s Federal Reserve is in a way “stored” in the European Central Bank, since the ECB’s capital is composed of each member state’s “sharehold” within the bank. Germany’s Central Bank has the highest sharehold, and is therefore often responsible for providing credit to economically weak nations such as Greece. Interest rates have been extremely low since the Financial Crisis in 2007 and 2008 not only in the US, but also in Europe. The Federal Reserve’s decision not to raise interest rates in 2015, in order to affirm their economic recovery, encountered strong criticism from German economists. While the low interest rates might help developing and economically unstable countries, it weakens German economy (also due to low energy prices and the weak Euro). Most believe that the global economy is ready for higher interest rates and that the Federal Reserve’s decision only expresses insecurity. As a result of the general concern for the global economy the German Stock Market (DAX) initially fell about 2%. Being the world’s biggest exporter, Germany looks to strengthen the EU economy and keep its own running, but many different factors play a part in making this more difficult, not least the big Refugee Crisis.

by Pauline F.