In a sputtering economy, Niles Werke shows how to get the German
locomotive running again. The century-old machine-tool company is at
the top of its field. Sales are expected to rise by 10 percent this
year. "We expect 2005 to be another good year," says Frank Reichel,
director of its Berlin plant.
Defying a lagging economy, Germany's flagship engineering sector
is booming. But despite plants that hum at capacity, companies like
Niles aren't hiring.
Its failure to create jobs is miring Germany in a political and
economic crisis, making the country ground zero in a growing debate
over Europe's economy. At a meeting in Brussels Tuesday, European
Union leaders - who want to make Europe the world's most competitive
economy by 2010 - are expected to renew calls that Germany, like
other countries in Western Europe, reform its labor protections and
social welfare systems to boost growth.
When Chancellor Gerhard Schroeder took office in 1998, 3.9
million Germans - 10.2 percent of the workforce - couldn't find
jobs. Last month, that number reached 5.2 million - 12.6 percent.
Mr. Schroeder's center-left government, which campaigned on a
pledge to create jobs, has issued bold economic and social welfare
changes, including tax cuts, expanded shopping hours, healthcare and
pension reform, and a controversial cut in unemployment benefits
intended to encourage people to get back to work. But none of those
steps have improved Germany's chronic job crisis.
Fearing continued voter backlash in key state elections, the
German government last week held a "jobs summit" with opposition
leaders. It emerged with a plan to slash the corporate tax rate to
19 percent, from 25 percent. And it pledged relief for mid-sized
companies and increased public investment in infrastructure and
The new set of proposals are motivated as much by politics as by
economic reality. Schroeder's party, the Social Democrats, suffered
a setback in a state election this month and fear losing their
traditional stronghold, North Rhine-Westphalia, to the opposition
Christian Democrats in a state election later this month.
The government can point to some improvements. Booming exports
amid a sluggish economy testify to the improved competitiveness of
German companies. Indeed, economists at ABN Amro, a global banking
group, report that German companies are more competitive than their
rivals in Italy.
European Commission statistics show that Germany's unit wages,
which have been among the highest in the 25-nation bloc, have fallen
10 percent compared to the EU average in recent years. …