Germany’s Economic Turnaround

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Germany’s Economic Turnaround

Wednesday, August 31st, 2005 | European Union |

Marginal Revolution points to a cover story in The Economist that confirms their predictions for a German economic turnaround.

Thanks to the intense pressure that they have been under in the past few years, Germany’s big companies have restructured and cut their bloated cost base. This process has for once been helped by the trade unions, which had been a stubborn obstacle to change. German workers have belatedly recognised that change has become essential, which is why they have been ready over the past year or so to accept such innovations as more decentralised pay bargaining, longer hours and even wage cuts. Thanks in part to this new flexibility, unit labour costs, a benchmark of competitiveness, have fallen sharply relative to other countries. In the past five years, Germany, long the most costly place in Europe in which to do business, has won a new competitive edge over France, Italy, the Netherlands and even Britain. That is a big reason why, last year, it regained its position as the world’s biggest exporter.

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