We desperately need a slimmer and fitter Germany

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One of the perennial stories of recent years has been that of Germany on the brink. According to this analysis - full of breast-beating woe in Germany and infused with a strong dose of
Schadenfreude in the UK - the German economy is so mired in old practices that it is doomed to an eternal downward spiral.

One of the perennial stories of recent years has been that of Germany on the brink. According to this analysis - full of breast-beating woe in Germany and infused with a strong dose of Schadenfreude in the UK - the German economy is so mired in old practices that it is doomed to an eternal downward spiral.

Certainly, Germany has been reluctant to introduce radical change that other European countries have embraced. In Britain, Margaret Thatcher's administering of the medicine was especially harsh; but almost every European country has introduced painful reforms in recent decades in an attempt to streamline the economy.

For too long, Germany seemed to believe that it could live in a world of its own, in which the economic sun would never set. Chancellor Helmut Kohl tried to introduce reforms that would improve Standort Deutschland - Germany as an investment site. His attempts came to nothing, not least because of the German consensus-based system, which is in many respects admirable, but which also means that change is difficult to achieve.

Mr Kohl's successor, Gerhard Schröder, has introduced one of the most crucial modernising changes that the country has seen. His tax bill, which has finally been agreed, gets rid of capital-gains tax on the sale of large shareholdings, thus making it possible to envisage the break-up of some of the all-German monoliths. Mr Schröder declared it to be "a great day for Germany and a good day for the image of Germany in the world".

Certainly, it is remarkable that Germany is introducing such substantial change to a system that has been famous for many years for its high taxes and complete inflexibility. It is an obvious paradox that it has taken a Social Democratic government to force the changes through, while the theoretically business-friendly Christian Democrats, now led by the east German Angela Merkel, grumbled among themselves. The markets soared on the news.

The changes have only just begun. A business climate index published yesterday, showing a fall in confidence, predated the tax-cutting package; the trend next month is likely to go the other way. But Germany's toughest calls - including pensions and the luxurious welfare provisions - still lie ahead. Some complacent Germans believe that change is not necessary; other Europeans argue that the German monster is incapable of change. But change is both necessary and possible. A slimmer, fitter Germany can benefit all of Europe.

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