Entering 2003: the Teutonic patient

Only 10 years ago, Germany used to be the pacesetter of the European Union; now it has become an embarrassment for the gurus in Brussels and a worry for the leading industrial nations. The German economy grew by a meager 0.5% 2002, the lowest in the entire EU, and forecasts for 2003 are not encouraging either.

One out 10 Germans of working age is without a job. The country registered a record 37,700 insolvencies in 2002, and this figure could climb to 42,000 in 2003. The wave of corporate collapses has cost the economy more than EUR38.4 billion, exacerbating not only the unemployment situation, but also ripping huge holes in urgently needed tax revenues.

The once prosperous German banks have seen profits crumble amid the rising tide of business failures and there are even rumors of liquidity problems with some of the big names.

All this makes grim reading, indeed. However, commentators at home and abroad have been predicting gloom and doom for Germany for at least 20 years. It still hasn't arrived. Therefore businessmen in the Gulf dealing with Germany, still the world's second largest exporter, should not be unduly alarmed.

The Economist in a special 14-page report on 'Europe's uncertain giant' in Mid-December 2002 summed it up appropriately: 'It would be entirely misleading to paint Germany as a country that is shabby and miserable, prone to political instability or in danger of terminal economic decline. On the contrary, it remains rich, stable and, for the overwhelming majority of its people, very pleasant to live in.'

There is no denying that the country is in urgent need of drastic reforms, starting with break up of its rigid labour markets and cutting public spending in the face of a slowing economy. Much depends on what happens in the next few years.

As The Economist noted, 'The trouble is with contentment. When life is so pleasant, there is little incentive for radical change.' Experts believe that times have to become much harder before the German patient is prepared to swallow the bitter pill. There needs to be a situation similar to that of Great Britain in 1979 when Margaret Thatcher took over.