What’s the Matter With Germany?

ROME – Italy may be the “sick man of Europe” today, but it is not the only country in need of medicine. On the contrary, even the mighty Germany seems to be coming down with something.

Italy is, to be sure, in dire straits. Over the last two decades, annual GDP growth has averaged just 0.46%, and government debt has risen steadily, totaling more than 130% of GDP today. Unemployment has remained persistently high, investment is plummeting, and the banking sector is deeply troubled.

Equally concerning, the number of women of child-bearing age has fallen by nearly two million since the fall of the Berlin Wall in 1989. And the share of active workers with a university education remains at levels barely comparable with other advanced economies.

Given all of this, it should come as no shock that Italy and crisis-plagued Greece are the eurozone’s weakest performers in terms of per capita GDP growth over the last three years. What is surprising is that Germany is the third-weakest performer. Germany is fiscally sound, with a large accumulation of surplus savings. It is also highly competitive in unit-labor-cost terms, enjoys its highest-ever labor participation rates, and benefits from a steady inflow of skilled labor from other parts of Europe.