Germany’s Economy: Three Illusions

“OUR euphoria is dangerous. It makes us overbearing, blind and dull.” So writes Marcel Fratzscher, head of the German Institute for Economic Research, in a new book, “The Germany Illusion”. The book’s message is that Germany, for all its economic strength, has weaknesses. It should be “required reading”, declared Sigmar Gabriel, Germany’s economy minister, who joined Mr Fratzscher for its launch. Mr Gabriel, who also leads the Social Democrats, junior partner in the coalition government, has already drafted Mr Fratzscher into an expert commission. Its goal, derived from Mr Fratzscher’s thesis, is to work out how to boost investment by both German firms and the government.Plugging the “investment gap” is all the rage in Berlin. On September 20th Chancellor Angela Merkel devoted her weekly podcast to the subject. Growth only happens “when people really invest”, she said, talking up electricity grids, computer networks, roads and other opportunities for private or public investment. Such rhetoric is a personal success for Mr Fratzscher. Having spent much of his career outside Germany, he has an international perspective that nowadays counts as leftish in German economic circles, dominated by such conservatives as Hans-Werner Sinn of Munich’s Ifo Institute. The conventional narrative starts with a triple triumph: a “jobs miracle” thanks to labour-market reforms in the previous…

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