The vulnerability of the rest of the Eurozone to sovereign defaults in SGIP is extremely high amid substantial holdings of government debt in the financial sector. However, this danger has been averted for now. On the other side, the real economic fall-out from a long-lasting recession in SGIP should be limited amid low trade flows. For Germany, the combination of historically low nominal and especially real yields and a weaker exchange rate on the one side coupled with the structural reforms performed during the last decade and the high competitiveness being enjoyed by the corporate sector will help growth to become increasingly stronger. Exports are already surging ahead and there is a high probability that domestic demand growth will increase over the medium term from the subdued levels of the past decade. Watch out for growth exceeding 2.5% on average for the next several years.
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