When the German government has to admit that the country can no longer afford its national holiday to celebrate reunification, it is clear that industrial stagnation continues to grip Europe's largest economy. The loss of the holiday is expected to generate in the region of €500 million in extra taxes. The finance minister, Mr Hans Eichel, commented that while German unity should be celebrated, Germans must accept that they will have to work more to make unity succeed. The €500 million will help Mr Eichel, but with a looming budget deficit of €5 billion, he will need to detail other revenue-raising initiatives quickly.
As things stand Germany is on course to breach the Maastricht Treaty's three per cent deficit ceiling for the fourth year in a row. The government is determined that this will not happen and to this end it is planning a substantial sale of State assets and the freezing of the salaries of civil servants. Early next month the final measures deemed necessary to meet the Maastricht target will be announced.
Mr Eichel cannot hope for any short-term bounce in the economy which might generate greater tax revenues.Unemployment is running at 10.7 per cent, a five-year high, and consumption is forecast to grow by no more than one percentage point. Reforms may go some way towards tackling the inflexible labour model and reliance on the social security system but the benefits will take time to come through. In addition, much of the industrial base remains costly and inflexible. Industrial wages are significantly lower in France and nearly a third lower in eastern Europe.
This threat to German jobs is perhaps greatest in the country's industrial heartland, the Ruhr Valley, where unemployment reaches nearly one-in-five. Most of the steel mills are shut, the (much-diminished) coal industry survives through subsidies of more than €2 billion a year, and workers in the car industry are conceding significant cost-saving proposals in order to protect their jobs from being exported. The 103,000-strong Volkswagen workforce has just traded a pay freeze in exchange for a seven-year guarantee of job security. Employees at General Motors are coming to terms with the realisation that they will have to work longer hours for the same wages if they want to keep their jobs.
The Lisbon strategy to build a globally-competitive economy needs implementation in Germany as much as anywhere but competition and the export of jobs are beginning to force through a change of attitudes that should yield results.