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Thursday, April 08, 2004

GERMANY'S ECONOMIC WOES, BRITAIN'S SUCCESSES AND WHAT IT MEANS Found via Medienkritik this piece in the Washington Times makes some important points about Germany:

Germany's current economic growth of about 11/2 percent yearly is "Barely above the water line, and nothing to write home about," Norbert Walter, chief economist of the Deutsche Bank Group, told an audience hosted by the American Institute for Contemporary German Studies last week.
Low growth is coupled with high debt projections due to Germany's generous social obligations and German labor participation far below that of the United States. The German population is aging and, as elsewhere in Europe, reproduction rates are well below replacement levels. These facts require a number of basic changes, Mr. Walter said.
He noted growth is "barely out of stagnation," and that low rate pales further given there are four additional workdays in Germany this year. Mr. Walter said the German standard of living is barely better today than 10 years ago, compared with 50 percent improvements in Britain and the United States.

I have to say I'm impressed with such a performance in Britain. I knew things had been looking bright economically speaking in the UK, but this is far better than I had suspected. For Germany though these figures are of course rather disappointing. It needs to be remembered that Germany is Europe's industrial powerhouse and the economic problems there affect all of the continent.
What this should also remind us of is that it is wholly wrong to argue for a closer place in the EU for Britain with reference to economic indicators. I've often heard the argument about the better economic prospects of Europe and in particular Germany being the reason why we in Britain should finally accept our place in Europe because it would be economically better for us. Now, historically, especially in the 1970s, this was certainly the case. The problem for this kind of Europhile argument however is that this is no longer true and hasn't been for many years already. The situation today is almost reversed with the former economic "wunderland" Germany increasingly suffering from the problems the UK experienced in the 1970s. So economically the European model, or more specifically the Rhineland model, doesn't appear to be the best bet around.
Some Europhiles will certainly agree with this but then point out that in return for sluggish economic performance at least Germany has far better public services. To a large extent that is certainly the case - but for how much longer? The mistake being made here is the one already familiar from general debates about higher taxation for better public services. In the short run higher taxes mean more money for the state. In the longer run however higher taxes depress growth which means there will be gradually less money and at some -largely hypothetical- point the state will begin to have less money and public services will actually start declining.
All this also has wider ramifications, because, as Niall Ferguson explained in a recent speech, the EU's integration is largely dependent on German money. The consequences of this money gradually drying up are of course hard to predict, but I would guess we could well see a slowing down of European integration, rather than a rolling back or outright collapse. Mark Steyn puts Ferguson's point sharply in the context of transatlantic relations.

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