The Hindu Business Line : New hope on German, French horizon

GERMANY, the world's third largest economy, is today one of the slowest growing economies. It, however, remains Europe's largest "locomotive economy" with a Purchasing Power Parity (PPP) of $2.362 trillion. Though the present generation of Germans are experiencing unprecedented prosperity, most seem "obsessively depressed" and worried about the state of their economy and the embarrassing and unprecedented level of corruption and nepotism in their corporate sector. The scandals at corporate giants such as Volkswagen, Mercedes, major chemical firms and banks have ensured overtime for Germany's corruption investigators.

A purchasing manager at BMW, Germany's second largest auto manufacturer, was detained this week for allegedly accepting the equivalent of $100,000 in bribe. Such stories have become routine in the media.

In this dismal background of corporate corruption, the German business, public and key government leaders are desperately clamouring for a new era of more reforms, transparency and accountability.

The German Chancellor, Mr Gerhard Schroeder's administration has failed in this endeavour. In addition to addressing corporate and government corruption, the German establishment has to initiate labour and social security reforms to reduce cost for employers on these counts. A skilled worker costs $47 an hour, compared to almost half that amount in the US and a third in Japan. German employers, hence, are reluctant to take on new workers. Over five million Germans are unemployed and living off social security.

Mr Schroeder has opted for an early general election — on September 18 — a year before the expiry of his term. Most Germans predict that he will be out of power, if the current opinion polls are anything to go by. It is widely believed that Ms Angela Merkel — the rising Centre Right star and leader of the Opposition, the Christian Democrats, may be the next Chancellor.

Often called the Margaret Thatcher of the new reform-oriented Germany, Ms Merkel has vowed to initiate a series of dynamic economic, social and labour reforms to restore the health of the economy.

Recently, she travelled to Paris and met the French President, Mr Jacques Chirac, and the man tipped to be his successor, Mr Nicolas Sarkozy. Mr Sarkozy has emerged as the dynamic leader with strong pan-European credentials. When he met Ms Merkel it made for a major media event and was seen as the coming together of leaders-in-waiting.

France and Germany now account for nearly 40 per cent of the European Union's GDP and both are passing through a committed phase of economic, social and labour reforms to "catch up" with Britain and the US. Ms Merkel said: "If I do nothing, current developments will lead Germany into a spiral of decline."

The European Union's depressed economic progress has often been blamed on a "leadership vacuum", termed its "greatest deficit". The average European economic growth this year may fall below the two per cent mark. With over 20 million European Union citizens unemployed and many of its member- states witnessing a record number of bankruptcies, both at the corporate and private levels, the economic ambiance is "more than depressing".

The silver-lining is that some companies are reporting better-than-average profit margins, but little is being ploughed back to modernise and improve manufacturing and labour productivity. This continues to remain a "sore point" and many Europeans hope that before 2007 there will be major structural changes.

The widely anticipated emergence of Ms Merkel in Germany and Mr Sarkozyin France should herald an era of dynamic economic, social and labour reforms.

The British Prime Minister, Mr Tony Blair, now widely rated as a "smart come back kid" in the wake of recent terrorist attacks, has roused positive expectation on the British economic front with lowest unemployment and impressive economic growth. The European Commission led by Mr Jose Manuel Barroso is yet to show much authority.

According to Indian observers in major European financial and business capitals, India should concentrate on consolidating bilateral trade and financial relationship with key EU member- states. It must also maintain a "healthy working relationship" with the European Commission. India will have a new Ambassador in Brussels in August and it remains to be seen how this new strategy will be implemented.

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