The stumbling German economy is a danger to the rest of Europe

Share

The news from Germany is bleak and getting bleaker. A survey of the main industry associations this week showed that expectations are gloomier than for almost 20 years. Growth is much lower than predicted; unemployment, already high, is expected to rise. Good reason, in short, for Germans to get depressed (again).

The news from Germany is bleak and getting bleaker. A survey of the main industry associations this week showed that expectations are gloomier than for almost 20 years. Growth is much lower than predicted; unemployment, already high, is expected to rise. Good reason, in short, for Germans to get depressed (again).

Part of the problem are the uncertainties created by 11 September. Even before the Manhattan catastrophe, however, it was clear that economic growth would be much lower than last year's 3 per cent. Many of the problems lie with the country's economic inflexibility. The Social Democrat Chancellor, Gerhard Schröder, introduced a number of important tax reforms last year that improved things somewhat. Even now, however, Germany's economy is hardly lithe. Its absurdly generous system of pensions and welfare benefits (stays at health spas come courtesy of the state) is clearly unsustainable. The pension timebomb could cause a particularly serious explosion in Germany, where one in five of the population will be over 65 in just a few years.

Germany's leaders have long acknowledged that radical reforms are needed; but they have been too frightened to introduce the changes that are essential if Germany is to remain Europe's leading economy.

And it is still the leading economy – a point that is easily forgotten amid the hand-wringing and sometimes ill-disguised schadenfreude. Germany alone produces a quarter of the gross domestic product of the entire European Union – much more than any other country.

If Germany comes to be seen as the economically sick man of Europe, that bodes ill for the EU itself. It matters, too, for the proposed enlargement of the union to include countries such as Poland, the Czech Republic and Hungary – an expansion that can only be successful if the most powerful country in the region remains stable and prosperous. Germany has been an important motor in the creation of the euro. If Germany's own economy now stumbles, the dangers for the rest of Europe are clear.

Already, 9 per cent are out of work; in the former communist east, the figure is twice as high. Mr Schröder promised a slight cut in the number of unemployed by the time of elections next year. But even his modest predictions now look unfulfillable. In the meantime, the government has repeatedly had to scale back its predictions of growth. The country is weighed down, too, by its crippling debt burden. Germany, which was tough in its demands that countries such as Italy should get their economies under tighter control, in order to become eligible for joining the euro, is now in danger of breaking the rules that it helped to draw up, thus potentially upsetting the European applecart. One intended benefit of the euro was avoiding the instability that caused such problems in the past; it would be a sad irony if Germany, the self-proclaimed linchpin of stability, helped to undermine the structures that have been put in place.

It should still be remembered that the collapse of the German economy has regularly been predicted, by Germans and foreigners alike – only for doomsayers to be confounded. Germany frequently seems incapable of reform – and then, at the 11th hour, introduces changes that allow it to adapt and to survive in a more competitive world. Germany is not, as Germans themselves admit, a country of natural entrepreneurs; it is, however, a country where precision is prized. German thoroughness may be a cliché; but it is also real. This thoroughness has in past years enabled the lumbering giant to make essential changes – late, but just in time. For Europe's sake – not just for the country at the economic, political and geographic heart of the continent – we must hope that this will not be the occasion when things do, finally, fall apart.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Recruitment Genius: Web Developer - Junior / Mid Weight

£15000 - £25000 per annum: Recruitment Genius: To support their continued grow...

Recruitment Genius: Marketing Data Specialist

£22000 - £25000 per annum: Recruitment Genius: They are the go-to company for ...

Recruitment Genius: Search Marketing Specialist - PPC / SEO

Negotiable: Recruitment Genius: This is an opportunity to join the UK's leadin...

Recruitment Genius: Sales Administrator

Negotiable: Recruitment Genius: This caravan dealership are currently recruiti...

Day In a Page

Read Next
Rafael Nadal is down and out, beaten by Dustin Brown at Wimbledon – but an era is not thereby ended  

Sad as it is, Rafael Nadal's decline does not mark the end of tennis's golden era

Tom Peck
Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Africa on the menu: Three foodie friends want to popularise dishes from the continent

Africa on the menu

Three foodie friends want to popularise dishes from the hot new continent
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'
10 best statement lightbulbs

10 best statement lightbulbs

Dare to bare with some out-of-the-ordinary illumination
Wimbledon 2015: Heather Watson - 'I had Serena's poster on my wall – now I'm playing her'

Heather Watson: 'I had Serena's poster on my wall – now I'm playing her'

Briton pumped up for dream meeting with world No 1
Wimbledon 2015: Nick Bollettieri - It's time for big John Isner to produce the goods to go with his thumping serve

Nick Bollettieri's Wimbledon Files

It's time for big John Isner to produce the goods to go with his thumping serve
Dustin Brown: Who is the tennis player who knocked Rafael Nadal out of Wimbeldon 2015?

Dustin Brown

Who is the German player that knocked Nadal out of Wimbeldon 2015?
Ashes 2015: Damien Martyn - 'England are fired up again, just like in 2005...'

Damien Martyn: 'England are fired up again, just like in 2005...'

Australian veteran of that Ashes series, believes the hosts' may become unstoppable if they win the first Test
Tour de France 2015: Twins Simon and Adam Yates have a mountain to climb during Tour of duty

Twins have a mountain to climb during Tour of duty

Yates brothers will target the steepest sections in bid to win a stage in France
John Palmer: 'Goldfinger' of British crime was murdered, say police

Murder of the Brink’s-MAT mastermind

'Goldfinger' of British crime's life ended in a blaze of bullets, say police
Forget little green men - aliens will look like humans, says Cambridge University evolution expert

Forget little green men

Leading evolutionary biologist says aliens will look like humans
The Real Stories of Migrant Britain: An Algerian scientist adjusts to life working in a kebab shop

The Real Stories of Migrant Britain

An Algerian scientist struggles to adjust to her new life working in a Scottish kebab shop
Bodyworlds museum: Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy

Dying dream of Doctor Death

Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy