The Hindu Business Line : Germany trapped in an economic cauldron

AS concern grows over the current health of German economy, there are more signs of deepening public discontent, particularly in East German economic region, which was ruled by Communists prior to Germany's re-unification in 1989 .

Although the German-Franco motor still continues to be the "economic locomotive power " of Europe, the euro zone region of the expanded European Union is currently rated as the "weak spot" of the global economic blocs and "Germany is still euro zone of the global euro zone."

According to latest economic survey - published in Berlin on Monday - (688 page Daten Report) Germany's three years economic stagnation has left "economic and psychological scars" among its 80 million plus citizens and the effect is more perceptible in East German region, with one fifth of the population and highest unemployment rate - over 20 per cent compared to national average of less than 10 per cent. The report paints a picture of German society that has awakened to its relative economic and social decline in Europe, as average Germans are "concerned and polarised" over ways and means to contain the challenge of economic stagnation and high unemployment.

Currently, the Germans are rated as fourth "least satisfactory" people in the 15 - pre-expansion European Union countries surveyed - after Greeks, Italians and Portuguese. By comparison, the British and Irish are rated as happy and satisfied members of the European Union. It is revealed that poverty is on rise in Germany and in East Germany level of poverty has doubled in last 10 years. Germany has now become "middle ranking" nation of the European Union according to many indicators including "material living standards".

The differences in the living standards and level of satisfaction are more pronounced in East German region, where for the fifth consecutive Monday, protestors against growing economic malaise marched on streets of Leipzig and protested against the Chancellor, Mr Gerhard Schroeder's Government proposed reforms to trim German welfare state by drastically reducing welfare, social and pension benefits, which the German economy can least afford in days of less than one per cent economic growth and high unemployment.

The Opposition centre-right `Christian Democrats' as seen politically cashing in on current malaise by launching a fresh strategy to create more "economic growth and employment" in East Germany. The more pessimistic scenario outlined by a merchant banker would indicate that Germany is fast heading towards "junk bond" status because of its ageing population, depressing economic growth and high unemployment, and submits that German economy - once the most powerful economy of Europe now faces a grim future. Such pessimistic outlook is based on Standard & Poor's recent submission that German Government's debt may rise to 300 per cent level of German GDP in coming decades.

Figures released last week confirm that Germany is lagging behind France - Germany's key economic rival on the European continent. The European Central Bank will hold on to two per cent interest rate for rest of the year to amble German and Euro zone companies to initiate capital expenditure, job creation and expansion. The silver lining on otherwise gloomy economic horizon is that German exports have grown far faster than others in the Euro zone in past year but German domestic demand continues to lag behind.

The export sector, however, alone cannot carry burden of economic revival on its own and German public and private sector companies need to display more dynamism and profitability to structure a national economic revival. The Schroeder Government has yet to develop "political clout" to initiate major social, economic and structural reforms to turn round the ailing German economy as it is argued that inefficiencies "must go" if Germany is to shake its current reputation as the "sick economy" of Europe.

The traditional, high profile German companies are also passing through a phase of deep psychological and logistical convulsions as their efforts trod create a dialogue with workers has yet to make any significant impact on German productivity and profitability. Since a decade now Europe's productivity growth has lagged behind the US and European companies have not been able to cope with latest technological developments - writes Mr Paul de Grouse, professor of international economics at University of London.