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Politics : Foreign Affairs Discussion Group -- Ignore unavailable to you. Want to Upgrade?

To: KLP who wrote (39816)	8/25/2002 3:18:25 PM
From: JEB	Read Replies (2) \| Respond to of 281500

Walker's World: Sick Man of Europe? By Martin Walker UPI Chief International Correspondent From the International Desk Published 8/25/2002 6:29 AM FRANKFURT, Germany, Aug. 25 (UPI) -- Nicely timed to set the tone for next month's German elections, the research group of Deutsche Bank finally put into words a fear that had begun to haunt the politicians with a long and thoughtful report titled "Is Germany Heading The Same Way As Japan?" "Gloomy prospects and chronically weak growth in the 1990s, coming near the bottom of the growth league even in good years, have raised the question, now being asked publicly, whether Germany is following Japan to become a second potential trouble spot among the large industrial nations -- an area with weak economic momentum and reliant on other countries for most of its growth impetus," it read. For the past 10 years, Germany shared with Italy the unenviable position of bottom of the league for economic growth rates in Europe. Unemployment remains stubbornly high at 10 percent (and double that in the former East Germany), and high taxes and welfare costs discourage employers from hiring. With one on the lowest birthrates in Europe, Germany also faces -- just like Japan -- the imminent prospect of too few workers to sustain the pensions of a large demographic bulge of retiring baby-boomers. The result has been widespread gloom. In 1999, Otmar Issing, chief economist of the European Central Bank, warned that Germany risked becoming "the sick man of Europe - unless it drastically reformed its costly welfare state." The Christian Democratic leader in the Bundestag, Friedrich Merz, has since cut Issing's modifying phrase, and asserts that Germany "is lagging behind the rest of Europe in all crucial economic areas and is now the sick man of Europe." Germany's plight is scaring its partners in the European Union. Daniel Gros, director of the Center for European Policy Studies in Brussels, calls it "the new German problem." Until recently, the "German problem' in European affairs was how to deal with a country that was stronger than its neighbors and thus a menace to equilibrium on the continent. It now seems that the problem is the opposite -- how to deal with a country that constantly under-performs." Just like Japan, one might say. Except that the Deutsche Bank report, having spelled out all the reasons why Germany was becoming Europe's Japan, added two notes of caution. It argued that the main reason for German stagnation - and responsible for as much as two-thirds of the lag in growth -- was the costs and taxes associated with unification, and absorbing the 17 million former East Germans. The second reason why Germany was not like Japan was because there was no banking crisis in Germany. Germany's banks (and this report came from Deutsche Bank) were in much sounder shape, without the ominous portfolios of bad loans that threaten their Japanese counterparts with systemic collapse. Hmmm. Maybe. The figures for Germany's 3rd-largest bank, Dresdner, are grim. It lost $1 billion in the first half of this year and saw 20 percent of its revenues disappear, and Dresdner has doubled its provisions for bad loans to $1.1 billion. German corporate bankruptcies are running at three times the level of 10 years ago, including some real giants like the Kirsch media empire. Commerzbank is also running into the red, and would normally be seen as a prime takeover candidate. But the banking sector as a whole is seen by investors to be in such trouble that Josef Ackermann, head of Deutsche Bank (the nation's biggest) has promised no new acquisitions, suspecting that any such announcement could sink his drooping share price yet further. German investors are already nervous. The main Frankfurt stock exchange is down 52 percent on its peak in 2000, a sharper fall than Wall Street or anywhere else in Europe. And the Neuermarkt, Germany's equivalent to the Nasdaq, is in even worse shape, having lost 90 percent of its value. Germany's investment culture began to boom in 1996, when Deutsche Telekom began to privatize and millions of German became shareholders for the first time. They bought DT at the initial offer price of $25 and felt rich as they watched the shares zoom to over $120 -- and in the past year have felt despair as the company lost almost $4 billion and the share price sank to $15. This became such a political issue that Chancellor Gerhard Schroeder forced the resignation of DT chief Ron Sommer. With elections just four weeks away, everything in Germany is now intensely political, including not just the economy and stock market but hot-button sound bites like "sick man of Europe" and "Is Germany Heading The Same Way As Japan?" And even if the banks insist Germany is in better shape than Japan, Chancellor Schroeder faces a steep uphill climb to re-election. upi.com