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Saturday, May 08, 2004

Germany's Moment of Truth Via CE

Can the largest economy in Europe remain competitive?Germany’s erstwhile model society—aging, mostly well-off and lulled to sleep by the hum of its economic engine—has gradually been surrendering economic leadership, while clinging to the illusion that it remains on top. Granted, Germany is still the world’s largest exporter and Europe’s biggest economy. But it has been consistently falling behind in economic growth, innovation and job creationThis is a moment of truth for Germany, and for both German and non-German CEOs who operate here. Will this country of 82 million pull itself together and reverse the inexorable slide into irrelevance and mediocrity? Can it break the cycle of ever-rising social costs? The alternatives are dire. “If Germany fails to radically reform its pensions, health care, education, social welfare, taxes and the labor market, this could lead to fundamental shifts in political and economic power constellations in Europe and beyond its borders,” warns Norbert Walter, chief economist of Deutsche Bank.If his statement sounds almost like panic, it’s because it very nearly is. “Our impact on the rest of the world keeps dwindling,” says Lutz Raettig, CEO of Morgan Stanley in Frankfurt. “It’s a process of slow erosion.” Due to high cost structure,it’s little surprise that few fresh dollars—or euros—are going into German manufacturing. The Bundesbank has calculated that industrial investment fell by almost 5 percent in 2001, plummeted by 9 percent a year later, and declined by a further 3 percent last year.It’s not the first time, of course, that Germany has to pull itself out of an economic mire in the last ten years. But the signs of economic and social decay have never been clearer.

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