9 million new jobs have been created in the euro area since theeconomy began a long recovery phase in 2003. Employmentgrowth accelerated from year to year, reaching 1.8 % in 2007.

And at the latest after the bankruptcy of Lehman and other banks and “Black Friday”, 10 October, this very confidence was dealt the final blow, giving way to naked fear. Banks across the globe have had scant access to fresh funds lately. The situation became so critical that massive government rescue plans were necessary.

The high price of oil has prevented the underlying improvements in US foreign trade from being reflected in value terms as well. The current oil price correction, as well as ongoing adjustment processes, will foster further recovery of the dollar.

High energy prices, the strong euro, the crisis on the financial marketsand, not least, the real estate crisis in some European countries are set to deal a hefty blow to future economic developments. Sentiment is becoming ever gloomier. Some relief would be just what the doctor ordered. But where is it supposed to come from?

After a buoyant start to 2008, dark clouds now hang over the European economy at mid-year. The two main threats: a pronounced slowdown in the US and the drastic rise in the price of oil.

In April, for the first time since early 2006, the seasonally adjusted jobless total in the euro area no longer declined but actually increased by 60,000. This is a further indication that economic momentum is slowing significantly and that inflationary pressurecould thus also ease up. This must be added to the equation as the ECB weighs up inflationary and economic risks. Keeping monetary policy on hold appears to be the best option in the current situation.

One of the EU’s responses to globalization is more knowledge, better education. The topic “education” is rightly a priority in the Lisbon Process, influencing both practice at primary schools and programs at many universities. Education is closely linked to research and innovation.

A string of new highs in energy and food prices is currently weighing on consumers and companies and dampening economic growth in Germany and Europe more than the international credit crisis. It is indisputable that countries poor in raw materials are suffering from this development. However, the extent to whichthey are affected varies. Those countries that have relied onenergy-saving technologies are less affected and can even improve their relative competitive position compared to other industrialized countries.

The Fed is stepping up its aggressive approach to solving the liquidity problems on the credit markets. The restructuring of mortgage loans with the help of government lending programs could take the strain off monetary policy.

The recent gyrations on the stock markets are not for the fainthearted. Having largely defied the bleaker environment in the second half of 2007, the stock markets suddenly went into anosedive in January, only recently regaining some poise.

Despite a host of negative factors, 2007 turned out to be asuccessful year overall for the Germany economy, with strong growth exceeding expectations. Financial markets are now that much more skeptical about the near future. But despite the manifest risks, it should not be overlooked that key factors by all means leave room for an optimistic outlook for the upswing.

As long as inflation is largely fueled by food and energy prices and there are no warning signals from unit labor costs and import prices, there is no cause for exaggerated concern. On the communication front, the ECB should, of course, endeavor to keep inflation expectations in check but without stoking up inflation fears.

So far, it appears that the boom on some euro-area housing markets has been followed by a soft landing. Housing construction is slowing down and the increase in prices on a year earlier is gradually dwindling, while consumption remains robust.

Despite the subprime crisis in the US and ebbing economic prospects, 2007 looks set to be another good year for equities. Even though no further increases are on the cards up to the end of the year, the Dax will end 2007 with double-digit growth. Gains on the European and US market are expected to be slightly more modest.

The risk reappraisal process on the financial markets is proving tobe fraught with tension. The central banks have already been forced to provide substantial liquidity assistance in order to keep the money markets functioning normally. However, a fundamental change in monetary policy remains unlikely.

Reports that China is well on its way to ousting Germany from its position as the world’s third-largest economy have recently met with considerable interest. It was always only a matter of time until this happened anyway, meaning that the news did not come as much of a surprise. The general focus of the debate should be directed more towards the global economic benefits of China’s immense catch-up process.

2007 has already passed the half-way mark. This means that it istime to look at how the economy has performed so far, an assessment that reaches a pretty positive conclusion on the whole. The fact that Europe is reporting solid growth despite the slowdown in the US is particularly encouraging.

The national central banks would appear to have launched a research contest on the issue of monetary development. One of the key issues is the suitability of the two-pillar concept.

The flow of positive news on the euro area economy is not letting up. After a surprisingly strong 2006, 2007 has also got off to a good start. The best news is that the unemployment rate fell to 7.3 % in the first quarter, the lowest figure since the launch of the euro. Surveys show that employment growth is set to remain dynamic and that the labor market upturn should also embrace the manufacturing sector this year. All told, the number of people in work in the euro area has grown by over 8 million since 2000 – a ppreciably more than in the US. Could this spell the end of wage moderation in the euro area?

Investors on the European and, in particular, the German stock market have already been spoiled this year. The DAX has gained around 8 % since the start of the year, around twice the increase recorded by the Euro STOXX 50. The Dow Jones, on the other hand, is lagging far behind, with gains of only just under one percent. The US market is unlikely to make up this lost ground by the end of 2007 either.