Europe´ engine

Why germany needs to change, both for its own sake and for others
ELSEWHERE in the world, europe is widely regarded as a continent whose economy is rigid and sclerotic, whose people are work-shy and welfaredependent, ando whose industrial base is antiquated and declining- the broken cogs and levers that condemn the old world to a gloomy future. As with most cliches, there is some truth in it.Yet as our special report in this week´s issue shows, the achievements of Germany, Europe´s biggest economy, tell a rather different story.
A decade ago germany was the sick man of europe, plagued by slow growth and high unemployment, with big manufacturers moving out in a desperate search for lower costs. Now, despite the recession, unemployment is lower tan it was five years ago. Althoughgermany recently ceded its place as the world´s biggest exporter to China, its exporting prowess remains undimmed. As a share of GDP, its current-ac-count surplus this year will be bigger tha China´s.
This feat gives the lie to the picture, common in America and Asia, of Europe as a washed-up continent incapable of change. And, for the rest of Europe, there is a lot to be said for having a strongeconomy at the continent´s geographical and centre. Yet Germany´s success is paradoxically also causing problems for its neighbours-problems which they, and Germany, need to address.

The old and the new
Germany´s impressive flexibility is the consequence of old vitues combined with new onea. The old consensus-building management system helped employers keep unions on side when costs needed to beheld down. The famous Mittelstand (small and médium.sixed firms, often family-owned) went through its operations, step by step, judging what to do in Germany, what to send abroad and what to outsource.
At the same time, economic policy took a new, liberalising, direction.the SchÖder government introduced reforms to the labour market and welfare systems in 2003-04;spurres on by those, and bycompetitive pressures from Europe´s single currency, German business ruthlessly held down real wages. Unit labour costs fell by an anual average of 1,4% in 2000-08 in Germany, compared with a decline of 0.7% in America and rises of 0.8% and 0.9% in France and Britain respectively. Although last year´s recession hit Germany hard, its economy is in much better shape now tan it was a decade ago-a pointthat should be noted in France, where President Nicolas Saekozy has taken to railing against outsourcing, and in southern Europe, which bends over backwards to preserve overgenerous wages and resricted labour markets.
Germany is rightly proud of its ability to control costs and keep on exporting. But it also needs to recognise that its success has been won in part at the expense of its Europeanneighbours. Germans like to believe that they made a huge sacrifice in giving up their beloved d-mark ten years ago, but they have in truth benefited more tan anyone else from the euro. Almost half of Germany´s exports go to other euro-area countries that can no longer resort to devaluation to counter German competitiveness.
While Anglo-Saxons were throwing money around, Germans kept saving.Domestic investment has not kept pace. The result of German´s prowerss at exporting, combined with their reluctance to spend and invest, has been huge trade surpluses.
Germany´s excess saving have been funnelled abroad-often into subprime assets in America and government bonds in such countries as Greece. It would be absurd to maintain that a prudent Germany is responsable for Greece´s profligacy orSpain´s properly bubble (though a few heroic economists have argued this). But it is true that, within a single-currency zone, habitual surplus countries tend to be matched by habitual déficit ones.

Versión traducida de europe´s engine.docx
Why germany needs to change, both for its own sake and for others ¿Por qué Alemania tiene que cambiar, tanto por su propio bien y para otros
ELSEWHERE ...