Germany's impressive flexibility is the consequence of old virtues combined with new ones. The old consensus-building management system helped employers keep unions on side when costs needed to be held down. The famous Mittelstand (small and medium-sized firms, often family-owned) went through its operations, step by step, judging what to do in Germany, what to send abroad and what to outsource.

At the same time, economic policy took a new, liberalising, direction. The Schröder government introduced reforms to the labour market and welfare systems in 2003-04; spurred on by those, and by competitive pressures from Europe's single currency, German business ruthlessly held down real wages. Unit labour costs fell by an annual average of 1.4% in 2000-08 in Germany, compared with a decline of 0.7% in America and rises of 0.8% and 0.9% in France and Britain respectively. Although last year's recession hit Germany hard, its economy is in much better shape now than it was a decade ago

In other words: Germany was a neo-lib wet dream for the past 10 years.

But there were imbalances and things are not right:

Imbalances cannot be sustained for ever, whether they are deficits or surpluses. Yet surplus countries tend to see themselves as virtuous and deficit countries as venal--the implication being that the burden of adjustment should fall on the borrowers. Germany's response to the troubles of Greece, Spain and other euro-area countries has followed just such a line. A bail-out for Greece, once taboo, is now being debated--and German ministers have even come out in favour of a putative European Monetary Fund (see article). But the idea that Germany should itself seek to adjust, through lower saving and higher consumption and investment, still seems unacceptable to Angela Merkel's government.

So, guess what Germany should do?

It is certainly true that Germany's neighbours have a great deal of work to do. France, Italy and Spain need to follow Germany in loosening up their labour markets; Italy, Spain and Greece need to tighten their public finances. But Germany also needs to push ahead with liberalisation.

(...)

A bold programme of German structural reforms would do much to boost consumption and investment--and, in turn, to raise Germany's GDP growth, which remains disturbingly feeble. Germany can also afford growth-boosting tax cuts without ruining its public finances.

Yes! More of the revenue-depressing policies that have done so much to limit spending and ensuring "competitiveness" is exactly what is needed!

Germany obviously doesn't have enough billionaires yet.

Wind power