Is Germany sinking?

Or would we be lucky to have the same problems? Steve Crawshaw reports After a run of bad economic figures they say the German miracle is over. Don't believe it, writes Steve Crawshaw. We would be lucky to have their problems

ASK employees at the Bavarian Motor Works in Munich about manufacturing costs, and they become defensive and defiant, though still polite. Siegmund Engel, 35, who puts together 3-series BMWs, is typical: "People say that costs are too high. It's true that other countries are cheaper. That is bad news for us. But I think our costs here are..." (he pauses) "... appropriate."

Siegmund says he cannot imagine getting less than the basic pounds 500 a week he now earns. His opposite numbers at Rover in Longbridge would no doubt be pleased to trade places. Siegmund himself readily admits that BMW, in common with the rest of the German economy, is not run on the cheap.

According to BMW, all but a few per cent of its workers earn more than DM60,000 (pounds 27,000) a year - in Longbridge the average is pounds 16,000. The BMW workers enjoy a holiday entitlement which starts at six weeks a year (five weeks at Longbridge), and goes up from there. Plus there are the standard public holidays, which Catholic Bavaria is especially keen on - 12 or 14 a year depending on how you count them (Britain has eight).

Then there is Urlaubsgeld, or "holiday money" - approximately an extra month's pay, towards the summer break in Majorca or Miami. And Weihnachtsgeld, or "Christmas money" - the same again, for presents all round. Those two bonuses have long been standard across Germany. In addition, BMW workers get a further, 15th month's, salary as part of a profit-sharing scheme. On top of that, there are generous health insurance and pension payments. Bernd Pischetsrieder, chairman of BMW, reckons overall German wage costs to be about twice those in Britain.

It is scarcely surprising that high manufacturing costs have become the topic of economic debate in Germany today. In almost every respect the economy seems to defy the laws of gravity. On wages, think of a number and double it. On prices, think of a number and double it (and then some, because the German mark is so strong). And - weighed down by that double burden - end up as one of the leading exporters world-wide.

Germans themselves worry aloud that it cannot continue. The Munich Abendzeitung carried a cartoon this month summing up the perceived state of play. A noticeboard proclaimed: "Jobs Vacant: liquidators ... bankruptcy specialists ... poverty advisers, etc..."

Such pessimism is understandable. Unemployment has reached 3.8 million, almost 10 per cent - well above Britain's 8 per cent. More than pounds 20bn left Germany last year for investment abroad - "exporting jobs", in the current catchphrase. For Britain there appears to be some comfort here - the UK is the biggest single recipient of the new investment. The electronics group Siemens, for example, is building a new pounds 1bn microchip factory on Tyneside, which will create 1,800 jobs.

Senior figures in German industry complain that foreign companies hardly ever invest in German industrial jobs any more. True - and an understandable reason for Germans to start panicking, as they have begun to do. More embarrassing still, Germany this month announced a budget deficit of 3.6 per cent, thus breaking the 3 per cent upper limit set at Maastricht for the planned creation of the single European currency. How are the mighty fallen. And yet...

THIS is not the first time that the end has seemed nigh. One notable feature of the German economy is that the bubble never quite seems to burst, however often the pessimists and the statistics suggest that it is about to. Whenever there has been a slowdown in the past 20 years, Germany's most influential magazine, Der Spiegel, has carried cover stories suggesting that disaster looms. When in 1993 it carried the picture of the sinking ship Germania printed above, the headline asked: "What can save the economy?" Within a short time, however, Germania was under sail once more. Last week, Der Spiegel was asking: "Eight million unemployed?"

It is tempting to accept the logic of Hans-Jurgen Meltzer, head of the Germany section at Deutsche Bank Research: "It's a German characteristic. There is permanent Schopenhauerian unease. People complain, even when things are going well. There's a constant pessimism, like a worn-out record." Others argue, too, that the periodic crises are themselves helpful, by forcing Germany to adjust, and thus helping the country back on to the economic straight and narrow, just when everything seems lost.

Certainly, Germany has a high tightrope to fall from. In city and countryside alike, Germans enjoy a standard of living that Britons can only dream of. Prosperous little towns with well-maintained historic buildings, and gleaming (if dull) new houses are strung out between self-confident cities. In the villages, Mercedes-driving farmers are a familiar part of the landscape. In the cities, the poorest estates can seem almost cosy-suburban to a British visitor. Hospital waiting lists are almost unknown. If they want to present their readers with the nightmare scenario, German newspapers lead off with the example of Britain.

For the unemployed, too, things are financially less grim. German unemployment benefit is around two-thirds of one's last employed income - in other words, as much as millions of Britons receive in full-time jobs.

Eastern Germany is a half-exception to this: except for the colour of its citizens' passports, east Germany is still another country, limping behind the west. But even east Germany is already in some respects better off than Britain. On average, east Germans now take more foreign holidays than the British. British workers undercut their indignant east German colleagues on the booming building sites of Dresden and Leipzig. Indeed, the problem got so bad that the German labour minister complained publicly that Britons were willing to work on building sites for a mere pounds 6.50 an hour instead of the German pounds 10.50.

Across Germany, the national economic high-wire act can be difficult to explain. Certainly, the success does not come from working long hours. Try ringing a German office on a Friday afternoon and you will be answered by the cleaner or the answering machine. Nor is it just the white-collar workers who take it easier than their European colleagues. At BMW, as elsewhere in Germany, Siegmund and his colleagues work a 35-hour week.

In Britain it was once fashionable to mock the teabreaks that seemed to be essential to industry. Germans do not bother with anything so petty: take the day off, or a long weekend instead. I once phoned a large company the day before a Tuesday holiday, hoping to catch an executive who had promised to talk to me. "No answer from anybody," said the helpful switchboard operator. "But surely," I asked, "the holiday is tomorrow, not today?" "That's right. Tomorrow, it's 100 per cent certain that nobody will work. Today, it's only 99 per cent certain."

Even during the hours that Germans do work, things are not rosy. Unit production costs are lower in Britain than in Germany. The brawny German mark - strong, and getting stronger - is an obvious exporter's nightmare.

All of which causes much angst. Germans agonise over what they call Standort Deutschland - literally, "Location Germany", meaning the competitiveness of German industry, and Germany's attractiveness as an industrial base. Standort Deutschland is shorthand for "adapt or die". League tables emphasise that Germany is many times more expensive than the new market economies of eastern Europe and the tiger economies of East Asia. If Germany doesn't mend its ways, runs the argument, then the whole economic mansion will collapse.

Partly as a result of this nationwide fear - which was heightened by the recession of 1993 - flexible deals were struck which would previously have been unthinkable. Saturday working suddenly became possible. Pay rises were smaller than ever before. At the end of last year Germany's biggest union, IG Metall, made a historic concession: it offered to forgo an increase in real wages in return for the promise of jobs. Chancellor Helmut Kohl is due to host further talks on the employer-union "alliance for jobs" on Tuesday. But even with all the new-look deals, the mystery remains. How come the economic miracle has not long since gone kaputt?

On cost, for example, few would dispute that Britain has a clear edge. Japanese manufacturers, looking for a foothold in Europe, long ago started flocking to Britain in recognition of that fact. Germany's Siemens is merely following the trend. And yet it was BMW that took over the Rover Group - not the other way round. The very idea of a British firm taking over a big German company remains unthinkable. German analysts tend to be thrown by the question of why this should be. It is like asking: "Why are British houses draughtier than houses elsewhere in Europe?" or "Why do the French not mind about presidential mistresses?" It's just the way things are, a national badge. Germans have become accustomed to the idea of their own economic superiority - and so has everybody else.

When you live, work and shop in Germany, the paradoxes become obvious. Myths about efficiency crumble quickly. Deutsche Telekom takes an eternity to do simple jobs; more complicated tasks take a little longer. Electricians and plumbers never turn up. Shops treat their customers with Communist- style disdain. "Browsers welcome" is not a familiar motto; linger, and you risk being thrown out. And if you bring back an item that does not work, don't expect an apology; what you get will be theatrical sighs and mutterings about the trouble you have caused.

Most Western countries have become used to thinking of good service as a key element of a strong economy, but Germany serves as a reminder to us that the connection is not absolute. The country's export capability is in no way affected by its plumbers' unreliability or the rudeness of its shop assistants.

And when it comes to manufacturing exports, make no mistake: Germany still succeeds. Latest figures, for October, show a year-on-year increase of 10 per cent. Foreigners and Germans alike are convinced that German products are simply better. Even a product touched by Germanness at one remove is perceived to have been blessed. A German car salesman tells of a customer looking at a Rover and announcing: "Because the Germans are involved - now I can trust this car." Buying German is not considered a duty, but a privilege. Hans-Jurgen Meltzer of Deutsche Bank Research points out: "The [German] cars are too expensive. Everybody knows that. But people accept it."

In global terms, it seems plausible that Western Europe's share of manufactured exports will continue to decline, as the Asian economic sun rises. Back on European home turf, however, Germany stays defiantly ahead. Germany has around a 10 per cent share of world manufactured exports; Britain has little more than half that.

Jurgen Pfister, responsible at Commerzbank for analysis of the German economy, believes: "We live from this image, 'Made in Germany'. But the advantage, if we still have one, is smaller than it was." Mr Pfister points out that the problems of the German economy are real. "At the edges, it's crumbling. A million jobs have been lost since 1993 - half of them long- term."

BUT IF the edges are crumbling the heart of the German economy may not be. According to a popular German saying, "Those who have been pronounced dead live longer." The sentiment may apply to the German economy itself. The budget deficit has set alarm bells ringing again, but given the hundreds of billions of marks that have been poured into the east, it could be argued that it is surprising that the budget deficit is as low as it is. And those exports...

In the search for an explanation one ventures on to the treacherously thin ice of national stereotypes. There is, it seems, no way to avoid the question of Grundlichkeit. Grundlichkeit, or "thoroughness", is a trait which Germans themselves mention when defining their own national character. If, in Germany, you called out "Grundlichkeit" in a game of word-associations, somebody would certainly respond with "deutsch".

It is more than just a state of mind. One worker at BMW talks with shock of his first look inside a Rover engine. "It was as though somebody had just thrown it together, any old how." Now, he says admiringly of the latest engines: "It's like looking inside a cigarette packet, it's so neat. That makes it visually better - but technically better, too. Things are less likely to go wrong." Under these termsGrundlichkeit equals neat design, equals neat performance, equals neat sales, equals a good job and good pay. What more could one want?

Germans tend to believe that what they do, they do best. They thus have a confident sales pitch. When asked to comment on Rover's weaknesses, the BMW chairman, Mr Pischetsrieder, accuses Rover of insularity, in the literal sense. "In its business policies, Rover - like all British industry - was very clearly concentrated on the British Isles. Many international opportunities were not used."

There is as much tortoise as hare in Germany's dogged sense of commitment to the final goal. "Discipline" is a historically loaded word, but an obvious truth has to be acknowledged: Disziplin, first cousin of Grundlichkeit, has helped to get Germany where it is today. Which puts Britain in a quandary. For it seems that the lack of discipline - the offbeat, the irreverent, the awkward - is an essential part of modern British society. One only needs to compare German TV advertisements (stolid, respectable) and British advertisements (an abundance of parody and self- parody) to see that the cultural differences are real. Are the British - still tainted, in the German perception, by "sloppiness", or Schlamperei - ready to knuckle down to a bit of Grundlichkeit? Hardly.

Instead, it seems that disciplined Germany will remain the de facto European class prefect - imposing lots of rules, keeping things vaguely on track and enjoying appropriate privileges. Britain, meanwhile, can do its own thing, throwing paper darts from the back of the class, larking about and maybe scraping through the exams at the end of the day. It might not be such a bad deal, for both sides.

Meanwhile, it is cheering for Britons to read about Germany's problems, so cheering to some indeed that it it is odd to think that Schadenfreude is not a native English word. But however gloriously grim the headline news about the "tottering giant" may seem, the word uberholen, or "overtaking", is not one that Britons can expect to need in the near future. And as for the prospect of a lean and powerful British Rover taking over a German BMW - maybe, one day. But Siegmund Engel and his compatriots are not lying awake at night worrying about it.