In the turbulent wake of German reunification in the early 1990s, Europe's political strategists were preoccupied with one thing: how to nail a united Germany--now by far the dominant European nation in terms of economic firepower and population--firmly to the European mast. And those worries had a counterpoint among Europe's business leaders: that Germany's mighty corporations and banks--the feared German economic juggernaut--would utterly dominate the rest of Europe, a corporate equivalent of the blitzkrieg of a half-century earlier.
The irony is, just the opposite happened. Germany can't be accused of flexing its political muscles. For much of the '90s, after all, it let France do most of the heavy lifting in European politics. And in economic terms, Germany has long been the millstone around the Continent's economic fortunes. Overregulation, lack of flexibility in labor and capital markets, and those Bundesbank-generated high interest rates to pay for unification costs were the main reasons European growth has been stuck at an anemic 2.25% annual average since the 1980s. Europe's No. 1 problem is not German strength but German weakness. "After Germany was reunited, there was the feeling that it would take a leadership position," says Lucio Caracciolo, editor of Rome-based geopolitical journal Limes."Instead, the country has been in suspended animation."
That's why it's imperative not only for Germany but for the European Union that Germany get its house in order--and sooner rather than later. In fact, Germany can and should become a positive model for the rest of Europe. A continent that seems to have lost its will for reform since the Maastricht Treaty of 1992 needs a strong leader. Would other Europeans, specifically the French, be ready for a more assertive Germany? "Fantasms and fears about the past are no longer an issue," maintains French economist and banker Alain Minc.
No other power is in a position to lead Europe. France, with its lingering dirigiste sensibilities, is unlikely ever to be a model for a future Europe. Its sweeping nationalizations in the early 1980s were thankfully copied by no one else in Europe. The 35-hour workweek being imposed today by Paris is an example for others of how not to regulate the workforce. Britain has certainly influenced others in its market-friendly policies, but the fact that it probably won't be entering the euro zone for years reduces its clout. Germany's economy generates fully one-quarter of European output, and eastward expansion over the next decade means it will occupy in every way the absolute center of Europe.
Germany's centrality explains why many Europeans cheered when Gerhard Schroder arrived on the scene in 1998 with his Blair-like promises of the Neue Mitte, or new middle. His predecessor, Helmut Kohl, had been obsessed with unification and cared precious little for economic matters. With the radical slashes in corporate and personal income taxes pushed through by Schroder in mid-2000, here at last was a sign that Europe's social economy could be reformed in a drastic way. If those reforms could take root in Germany, they could take root anywhere. Sure enough, France and Italy soon began to use the Schroder reforms as a cue to reform their own fiscal structures, even if their tax cuts were timid.
No one in Europe is holding his breath, waiting for a German Thatcher to forcefully shake the country out of its slumber. Rather, Europeans want to see a steady stream of reforms coming out of Berlin in order to keep up the pressure on governments throughout the euro zone. That means zeroing in on further pension reforms, more liberalization of labor market regulations, and increased measures to encourage start-ups.
The chill winds of economic slowdown are beginning to blow again across the European continent. Unemployment is rising, and business confidence is tumbling. The embers of economic growth must not die. That is why Germany must continue on the path of reform. Europe needs Germany more than ever.
Rossant covers European politics and economics from Paris.
Get BusinessWeek directly on your desktop with our RSS feeds.
Add BusinessWeek news to your Web site with our headline feed.
Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video.
To subscribe online to BusinessWeek magazine, please click here.
Copyright 2001 , by The McGraw-Hill Companies Inc. All rights reserved.
Printer-Friendly Version
