Germany’s Economic Mirage

LONDON – For 60 years, successive German governments sought a more European Germany. But now, Chancellor Angela Merkel’s administration wants to reshape Europe’s economies in Germany’s image. This is politically unwise and economically dangerous. Far from being Europe’s most successful economy – as German Finance Minister Wolfgang Schäuble and others boast – Germany’s economy is dysfunctional.

To be sure, Germany has its strengths: world-renowned companies, low unemployment, and an excellent credit rating. But it also has stagnant wages, busted banks, inadequate investment, weak productivity gains, dismal demographics, and anemic output growth. Its “beggar-thy-neighbor” economic model – suppressing wages to subsidize exports – should not serve as an example for the rest of the eurozone to follow.

Germany’s economy contracted in the second quarter of 2014, and has grown by a mere 3.6% since the 2008 global financial crisis – slightly more than France and the United Kingdom, but less than half the rate in Sweden, Switzerland, and the United States. Since 2000, GDP growth has averaged just 1.1% annually, ranking 13th in the 18-member eurozone.

Written off as the “sick man of Europe” when the euro was launched in 1999, Germany responded not by boosting dynamism, but by cutting costs. Investment has fallen from 22.3% of GDP in 2000 to 17% in 2013. Infrastructure, such as highways, bridges, and even the Kiel Canal, is crumbling after years of neglect. The education system is creaking: the number of new apprentices is at a post-reunification low, the country has fewer young graduates (29%) than Greece (34%), and its best universities barely scrape into the global top 50.