A Bit Of Optimism Is Ok

Finally, some good news. After more than two years of skirting recession, Germany is starting to grow again. The German economy will expand by 1.7 percent in 2004, according to the latest upbeat forecast from the IFO Institute in Munich. Employment is up. Business confidence has risen for the third month in a row. Frankfurt's stock market has surged more than 60 percent since its March low.

Whom to credit for the new optimism? The spinmeisters would claim Chancellor Gerhard Schroder and his wide-ranging package of labor and entitlement reforms, called Agenda 2010. The Bundestag is expected to pass the measures this week. And last week Berlin's ruling and opposition pols agreed to a long-overdue reform of the country's out-of-control public health-care system. With an energizing 16 billion euro income-tax cut planned for January, it looks as though Germany is the sick man of Europe no more.

Alas, all is not as it appears. First the growth forecast. A third of next year's anticipated boost owes more to a quirk of the calendar than to better economics. Come 2004, more national holidays will fall on weekends--an increase in days worked, in other words, not faster growth. The remainder of the projected uptick reflects hopes for a U.S. rebound. The employment gain is even phonier. The government claims to have created 930,000 new part-time jobs--but in fact most already existed and are simply being counted for the first time because of a change in tax laws. In fact, as German businesses continue to shrink at home and expand abroad, German unemployment will continue to increase--from 4.4 million to 4.6 million people, according to economists.

Berlin's political initiatives are no less spurious. Take last week's ballyhooed health "reforms." The new rules require patients to pay more but do nothing about the wasteful cartels of doctors, pharmacies and drug companies that push up costs in the first place. As for that tax cut, Schroder didn't have the guts to also cut spending; instead, he'll merely add the amount to Germany's burgeoning national debt, already running far in excess of what the European Union allows. As Josef Joffe, editor of the weekly Die Zeit, sardonically puts it: "Schroder will remain Schroder."

Still, not all is fakery. Last week, little Saar state, a half-forgotten rust-belt basket case, made news by coming first in a reform-and-dynamism ranking of Germany's 16 states, done by the Institute of the German Economy in Cologne. Among other things, the Saarland has quietly done away with two thirds of its 3,300 or so regulations governing bureacracy and private business--a not-so-small miracle in rule-obsessed Germany.

Moreover, in June employers for the first time faced down the powerful IG Metall labor union and refused its demands for reduced work hours. That's nothing short of astonishing. Perhaps most important is a discernible change in mood. The seemingly endless string of bad news--from Germany's economic laggardliness to the alarming decline of its education system--has finally awakened Germans to the need for reform. Now they just need to stop talking and start acting. And no more trickery, please.

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