In the days when Europe was divided by a curtain made from iron, they used to say that the Soviet Union would never allow a united Germany. It was terrified of the idea, and yet, since 1989, the impossible has happened: a united Germany, rather than becoming the economic heavy many expected, had become relegated to the slow lane of Europe, a kind of economic autobahn with a 30-kilometre speed limit.

In a way, Germany was Europe’s answer to Japan; economic powerhouse for decades, reduced to jumping from one recession to the next. Earlier this decade, for example, it suffered from two recessions.

And yet of late, things have changed.

In 2006 the economy grew by 3.1 per cent, outpacing even the UK. And in recent years, a time when global trade has changed so dramatically, it is one of the few developed countries that has managed to maintain its share of world trade.

To an extent, it’s all been down to hard work. Average earnings increased by 0.2 per cent in 2004 and then again in 2005, while unemployment fell, from 9.5 per cent in 2005 to 6.6 per cent today.

And here is another success. Earlier this year the country was able to turn in the first surplus in public finances since re-unification. The National Institute of Economics and Social Research (NIESR) predicts a government surplus worth 0.3 per cent of GDP this year, and that it will stay there in positive for the next few years. In fact, of the G7, Germany is unique in boasting a a positive balance of government borrowing for this year. Although, Spain does have an even bigger surplus.


As for total government debt, or net debt as a percentage of GDP, by the end of this year this is expected to be around 64.5 per cent, a little higher than in the US, but a lot smaller than the level currently seen in Italy and Japan. But the point is, the NIESR expects this debt to fall so that by 2009 it will be down to 52.1 per cent.


As for trade, the surplus with Germany’s current account by the end of this year is expected to be 5.1 per cent of GDP, compared to a deficit of 5.9 per cent of GDP in the US and a 3.1 per cent deficit in the UK. Mind you, as far as trade is concerned, Spain takes the biscuit. NIESR expects the current account balance in Spain to be 10.2 per cent of GDP by the end of this year.


In many ways, Germany has taken the opposite approach of the UK and US. It focused on trade, consumer spending has been low and despite the enormous costs of unification, government debt is now falling so that net debt is fast becoming quite manageable. Maybe it’s time to put the no-speed-limit signs back on the autobahn. If you like this article, why not register for our daily newsletter? Or if you already receive the newsletter, then start spreading the news and tell your friends and colleagues. To register visit this link

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