Noël Goutard, supervisory board chairman of French auto-parts maker Valeo, is a longtime observer of the German economic scene. While CEO of Valeo, he built up the company's business in Germany, making wide-ranging connections in the country's auto industry. Goutard spoke with BusinessWeek European auto correspondent Christine Tierney about the outlook for the German economy. Here are edited excerpts of their conversation:
Q: Is Germany in the midst of long-term decline? Could it stagnate as badly as Japan?
A: No way. Japan is an island. Its elite isn't internationalist, but isolationist, whereas Germany has an international tradition and exports technology. Its investments abroad are bigger than Japan's and more diversified. They have institutions that the Japanese don't have -- for example, Deutsche Bank, Allianz. In Germany, everyone speaks English. In Japan, only a minority do.
Q: If Germany does decline, what are the consequences for Europe? Can the Continent withstand a slowdown in Germany?
A: No. Germany is essential. Germany is the biggest economic power after the U.S. [and Japan]. Germany can't prosper without the U.S., and Europe can't prosper without Germany.
Q: What is the problem with Germany?
A: First, it has a demographic problem -- the birth rate is very low. So Germany has a problem financing retirements. The Germans haven't yet absorbed East Germany. Both the French and German governments will make concessions [to pensioners] without addressing the problems in productivity, which will lead to bigger debt, and that will lead to inflation. Also, [the Germans] have made big investments in the U.S. -- for example, DaimlerChrysler -- which have not paid dividends. They thought size would enable them to prosper. But they won't get the return on their investments.
Q: What are the consequences for the auto-parts business?
A: [The German car industry] is booming. The domestic market is down, but exports are booming.
Q: What is the outlook for reforms that would make Germany a better place to do business?
A: I'm pessimistic because rigidities are increasing under [Chancellor Gerhard] Schroder. It's 10 times more expensive and takes 10 times longer to lay off someone in France or Germany than in the U.S.
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