The German economic miracle ended at some point during the 1980s. Productivity growth fell and unemployment rose-it is now 7 per cent in the west and 18 per cent in the east. Moreover, the demographic situation is worse than in most European countries. Ten Germans today will average six children between them and they will have no more than four grandchildren. Forty per cent of women graduates will be childless.
One could go on and on citing figures of Germany's relative decline. But in order to understand why Germans are not more urgently seeking solutions to their problems one must also remember that 30 years of high growth cannot be eroded in ten or 15 years. The Germans are still richer than the British. Germany is also still a country of relatively low inequality-lower than in Britain. The welfare state is still more generous than in almost all other EU countries-the pension system, for example, promises all participants 64 per cent of their final income after 45 years of work.
This is a country whose trademark in the past was a cool economic realism. Germans accepted the rules of a competitive society. The 6m refugees from the east had lost everything during the war except for their qualifications, their energy and the absolute will to regain their former social status. Following the introduction of the new currency in 1948, Germany was the most deregulated and competitive country in Europe. We know the result: high economic growth and full employment for more than 20 years. This success generated a new consensus-the unions made their peace with a market system earlier than in most other European countries, and accepted structural changes even when it led to temporary unemployment.
Germany 2002 is a very different country. Those born after 1950 have experienced nothing but prosperity. But that is not enough to explain why political lethargy has smothered Germany for at least 15 years. Why has Germany become a political "slow-motion" country which discusses tax reforms that have been in place in similar countries for nearly a decade, or which tinkers with labour market reform for 20 years without changing anything. Time lags between new problems and their solutions have become longer and longer.
Take the issue of immigration. During the 1980s, it was higher than in the US, Canada or Australia. Between 1987 and 1997 the number of foreigners in west Germany increased from 4m to 7m out of 62m inhabitants. Yet politicians, especially on the right, went on repeating the slogan-"we are not a country of immigration"-despite the fact that most big cities had many school districts where more than 80 per cent of children were from foreign families. The same is true with unemployment or the pension crisis. While other countries, like Denmark or the Netherlands, reformed their labour markets and created employment, Germany did nothing.
The reason for Germany's inability to tackle problems head on is that it has the most complex internal system of political checks and balances in the western world. After the war these checks and balances helped to cement a pro-growth consensus. But, as time passed, economic and political inflexibilities multiplied and organised lobbies clogged up the system. These lobbies have more leverage than in most countries because the power structure is so fragmented. According to the constitution, Germany is a federal country. In a formal sense this is true but German federalism is quite different to American or Swiss federalism. The 'L?nder' (states) have a powerful presence but very little autonomy-in fact Germany is run by a kind of consensual centralism with power always balanced between the L??nder and the federal government, between labour unions and employers, and so on.
The 'L?nder' have no significant independent power of taxation. The two most important taxes, income tax and value-added tax, are collected by the centre and then shared out according to various formulae between the federal government and the 'L?nder'. These formulae ensure that rich states subsidise poor ones and mean that welfare payments and public services are broadly similar all over the country.
Even in areas where one might expect more autonomy, such as education, 'L?nder' ministers come together and thrash out national rules in everything from primary schools to higher education. Similarly, public sector pay is not decided at the 'L?nder' level but by national collective bargaining.
The Bundesrat, the second chamber of parliament where the 'L?nder' are represented, must agree on most of the complex tax-sharing system with the first chamber of parliament, the Bundestag. And because the main opposition party often has a majority in the Bundesrat, Germans in effect are governed by an all-party coalition. As a result, it is hard to assess which party is responsible for which policy outcome.
This all-party government creates a kind of negative competition between the parties-reinforced by constant electioneering, the consequence of regular 'L?nder' elections (two are coming up in February). It is very hard for a political party to do something brave but unpopular for two or three years and keep winning elections. During the last election campaign, when Chancellor Schr?der presented some ideas for reforming the labour market, the conservative candidate, Edmund Stoiber, announced that he was against any reduction in unemployment benefit.
Of course Germany still exports more than 25 per cent of its GDP. Industry is still very competitive. But in a modern economy, two thirds of employment is provided by local services. Here the German system is weaker than in most comparable countries. Moreover, the education system-once the envy of Europe-is now struggling badly. Many German pupils do not complete secondary school until they are 20, they then start their university at 21 or even 22, and do not finish studying until they are 28 or 29. Most young Germans begin their careers so late that there is not time in which to experiment with different career possibilities-the result is that many people remain in the first job they find after university for the rest of their careers adding to the sense of national stagnation.
Germany has to manage its crisis without a Margaret Thatcher and without a political system able to delivering a government with a mandate for radical change. On a simple extrapolation of present trends things do look bad. But simple trend extrapolation is usually wrong and surprises are possible. This is not Weimar.
There are some positive stirrings below the surface. Schr?der's second term has started badly and he will have to run more risks than is usual if he wants to regain ground. Public debate is also more angry and emotional than usual which may be a sign that people are starting to recognise that things cannot go on as they are.
Further, some of the strongest 'L?nder' presidents, from both the main parties, are fed up with all-party government, with unending bargaining between states for compromises which make nobody happy. They want a more competitive federalism, more independence from Berlin. Redesigning Germany's pseudo-federalism could break up the post-war stasis.
