Expert View: Come on, Germany, show 'em how to run an economy

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The Independent Online

"He had a gun! He made them get out of the car and then take all their clothes off."

"He had a gun! He made them get out of the car and then take all their clothes off."

The rustling of papers on the genteel terrace at Baden Baden told me I wasn't the only one to put down my Süddeutsche Zeitung and start eavesdropping. "Then he threw a match on the pile of clothes, and made them dance around the bonfire - naked! Occh! These new labour laws."

Fortunately, my guffaws were muffled by the collective tut-tutting in the air.

This unusual protest was against the "Hertz IV" reforms, which take the hardly radical step of ending the current link between unemployment benefit and previous salary. The existing system costs the taxpayer a fortune and is hardly a "back to work" incentive. That such a long-overdue measure leads to yuppies being forced to streak at gunpoint says a lot. This is Germany's Summer of Discontent.

Endless column inches fill German papers on their many economic and social woes and contribute to a negative self-perception. If anything, the view from abroad is even worse: one New Yorker asked me if I was enjoying my trip to the "sick man of Europe".

And yet ... have you noticed some recent economic statistics? I don't mean unemployment, which is edging down to the still appallingly high rate of 10.2 per cent. I mean economic growth. Lazarus seems to be rising. Second-quarter GDP exceeded forecasts, making a 2 per cent out-turn for the year a real possibility. Last week it was even suggested that growth could pick up further in 2005, to 3 per cent. What's going on?

Naturally, the politicians have been quick to try to claim credit. The economics minister spoke about economic recovery demonstrating that the government's reform package was working. This no doubt had something to do with its rock-bottom opinion poll ratings and the upcoming regional elections in Brandenburg and Saxony. Hertz IV is a big issue in these elections - some benefit offices have had to hire security guards.

More realistically, credit probably lies not with the nascent reforms but an old- fashioned export-led recovery. Exports have been growing at an extraordinary 14 per cent.

In addition, this last recession seems to have woken many of the larger German corporations from their slumbers, and they have been contributing to this summer's "reality check". Across the country there has been an employers' counter revolution against the 35-hour week. I visited Sindelfingen, outside Stuttgart, where social divisiveness is at its height following the DaimlerChrysler decision to press for a five-hour increase in its employees' working week.

At the end of the 19th century, economic recovery allowed Germany to embark on massive socio-economic reform - its kulturkampf, or cultural struggle. The government must hope it can repeat this with its ambitious "agenda 2010", and that better economic performance will ease social unrest.

This struggle is worth it. Imagine if we were to see Germany growing at a rate close to America's next year, and instituting these long- overdue structural reforms. The implications could be massive. A big element in the arrogant Rumsfeldian view of old Europe is its inferior economic performance. This has also been a big plank in the anti-euro argument in the UK, ignoring economic reality.

The size of the German economy means it is the engine of the European economy as a whole. Not just the continent, but all of Europe.

We must hope the German government wins this struggle and secures success for the European economic model, vs. the more extreme American alternative. If that happens, I may even dance naked round a bonfire, voluntarily.