The German economy is on a growth course. It is correct, however, that while German exports are booming, domestic demand continues to lag behind. In our autumn forecast we reckon with 1.8% growth in gross domestic product this year and 1.7% growth next year. If you take into account the fact that there will be fewer working days next year and compensate for the resultant effects on economic activity in the two years, then our economy will grow even more strongly next year – by 1.9% – than this year – by 1.3%.

Indeed, with Agenda 2010 we have implemented Germany’s most far-reaching economic and employment policy reform program ever. But it takes time before structural reforms become discernible on the labour market. Nevertheless, initial positive effects on employment are already being registered. However, their full impact will only unfold in the medium term. Overall we are relying on increased individual initiative and flexibility. Accordingly, the principles of our labour market reforms are “challenge” and “promote”. That will enable us to make a more efficient contribution to reducing unemployment than in the past. We must change direction; there is no alternative. We must confront the challenge of increasing global competition and demographic change if we want to preserve our competitiveness and maintain functioning social systems.

We are already in a phase of economic recovery. It is also true that foreign executives give Germany good marks as a business location. As a result, we need not fear comparison with other countries. The most important thing is that we maintain our course – against all the resistance. I am convinced that confidence in the success of our reforms is growing and will become stronger. That will lead to an increase in investment and consumption, which is urgently needed to boost domestic demand. The World Economic Forum’s recently published Business Competitiveness Index demonstrates impressively that we are on the right path. It found that Germany is also ranked first by local executives in terms of the attractiveness of its business environment.

We Germans have a tendency to make things worse than they actually are. Yes, Germany is better than its reputation. What we need, however, is more individual initiative and the entrepreneurial courage to actually exploit the favourable conditions and opportunities that exist.

We have a very significant resource that makes us internationally competitive. That is the brains of our scientists, researchers, engineers and skilled workers. Their ideas determine how innovative we are. That, in turn, is a significant precondition for productivity, growth and employment. However, we must make even better use of these advantages in future if we want to be able to continue playing in the big league of highly productive economic powers and to create additional jobs in the process.

It’s a fact that manufacturing industry’s share of Germany’s overall economic product has been falling since the 1970s – to 23% in 2003. However, this structural transformation is normal in highly developed economies, because the market for high-value services becomes increasingly important alongside manufacturing industry. Look at the United States, for example: its manufacturing industry only accounted for 14% of value added in 2003.

It always makes sense to pay attention to developments in other regions and to analyze the approaches used in order to see whether they can also be applied here. However, the “Asian crisis” arose out of problems that we do not have in a similar form in the new Länder. Furthermore, developments in the countries of central and eastern Europe can only be compared to a limited extent with east-west integration. Certainly, like these other countries, the new Länder found themselves in a difficult economic position in 1990. However, the subsequent development was entirely different – here, a process of modernization with broad support from the federal government and the west German Länder and municipalities; there, a process of free market reforms primarily based on each country’s own potential. Nonetheless, in my opinion, we can still learn from the transformation processes in the new member states. For example, they are exemplary when it comes to the degree of deregulation. We are only now in the process of catching up here with the federal government’s master plan to reduce bureaucracy. We have already temporarily or permanently removed a number of bureaucratic burdens – not least due to proposals received from model regions in the east.

The federal government has declared a major offensive against unemployment, which is far too high in Germany. That is why we implemented the labour market reforms and set the correct course for our social security systems. That is the function of economic policy in a market economy: it should create the framework conditions that enable businesses to strengthen and develop their competitive position. The crucial thing now is to broaden the foundation for growth and ensure that domestic demand takes off. New jobs will then be created.

That goal was set for Europe by all the heads of state and government of the EU member countries. With Germany’s structural renewal, with Agenda 2010, we have created the prerequisites for dynamic growth that can also put the labour market back in order. I remain confident that we will succeed in achieving that within a few years.