Fiscal Pact Burdens the Euro Area. Joint Diagnosis of the Macro-consortium

Declining demand from the euro area drags German exports and consequently investment downwards. The German economy is expected to grow by just 0.3 percent in 2012. For 2013, the outlook varies: German exports into countries outside the euro area should grow more strongly, while a continuing austerity policy in the euro area should keep demand for German products down. Greater demand for exports also triggers domestic demand, especially investment in equipment. The macro consortium IMK, OFCE and WIFO assumes a GDP growth of 0.7 percent for 2013. Simulations of the mid-term development in the euro area show that synchronous adjustment programmes of the primarily supply side type will deepen the gap between the EU countries in southern Europe and Germany. In order to find a way out of the crisis in the euro area it is necessary to return to an expansive demand policy as part of the economic policy agenda in Europe.