NCPA - National Center for Policy Analysis


March 6, 2006

Imagine a whole country run like General Motors and you get an idea of Germany's economic problems, says the Wall Street Journal. For almost every gold-plated benefit that brought the world's biggest auto maker to its knees, an equivalent can be found in Germany's welfare system. For example:

  • As GM struggles with rising health care costs, so does Germany, where employers and employees finance a system weighed down by an aging population and a high jobless rate.
  • GM jobs banks pay laid-off workers not to work, while Germany gets them to retire early; last November, GM announced 30,000 job cuts, and the Federal Labor Agency said that more than five million people, or 12.2 percent, are out of work in Germany.

But according to the Journal, there is one big difference: Unlike on GM's glum assembly lines, the Germans are ebullient. Much has to do with Angela Merkel's first 100 days at the Chancery. The optimists invariably cite two figures to build their case that the worst is over:

  • One is the rise in the GfK consumer climate index; yet their bullish consumer sentiment doesn't mesh with the continuing fall in real wages and the massive job cuts at German blue chips.
  • The other figure is a business climate index from Ifo (the Institute for Economic Research at the University of Munich); but better business outlooks don't necessarily translate into new jobs.

The fundamental problems remain the same as in Gerhard Schroder's seven years at the helm, says the Journal. Labor laws are too rigid, though firing rules were relaxed for the first two years of employment. Tax rates are high and complicated, the bureaucracy onerous, the schools and universities subpar and health care and pension costs exploding. For all the current optimism, Germany looks more like GM than Toyota or Porsche.

Source: Editorial, "GMermany," Wall Street Journal, March 1, 2006.

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