Germany's economic mirage

By: Wolfgang Munchau

In my FT Deutschland column this week, I was looking at the German economy beyond the current cycle. This is the gist of it: This year is going to be ok. Another decent year of growth, though clearly under 2 per cent – which is still a decent performance for Germany. But longer term I am much less optimistic than the prevailing mood among investors would currently suggest. Germany is very hip at the moment. Investors are still buying the competitiveness improvement story, and the wage moderation story. But improved competitiveness alone will not get Germany onto a long-term growth path. It needs reforms to make the economy much more dynamic than it is today - not reforms to make it even more competitive. Among the necessary reforms are the liberalisation, or even privatisation of universities, liberalisation of services, and of energy, privatisation of state-owned savings banks. The Merkel governments'  failure to enact any reforms, and to go backwards on issues such as the Hartz labour reforms, and the minimum wage, means that Germany is fast moving in the wrong direction. International investors will eventually catch up with this new reality. After the next elections, Germany will either drift to the left, or the Grand Coalition will renew itself. Either way, there will be no more reforms. So the new German economic miracle is nothing more than an old mirage.

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