by Claude Carpentieri

When the biggest global recession in decades kicked in, Germany was able to weather the storm and recover much quicker and better than Britain, the US, or any other major Western economy.

Between 2000 and 2007, unemployment in Britain was never any higher than 5.5% (see this) while, in the same period, the German figures were regularly double that rate – between 8 and 10 per cent (see this).

But over the last two years UK unemployment has overtaken Germany’s at a hair-raising pace. While our jobless rate is now tickling 8%, in Germany it decreased to 7.3% at the start of 2010 and then further lowered to 6.7% in October – again, its best figures since reunification.



And so a number of legitimate questions arise. Why is it that after registering a slump of -4.7% last year, Germany is now forecast to end 2010 with a GDP growth of 3.6%, its fastest pace since reunification, while Britain is still finding its feet?

What are the Germans doing that we’re not, to the extent that many analysts are now openly talking of a “German Miracle“?

The answer lies in a policy that the German government adopted at the start of the crisis. It’s called kurzarbeit and it literally means “short work”. While other countries spent unprecedented sums on bailing out banks or dubious stimulus programmes, Chancellor Angela Merkel’s government (at the time a coalition of centre-right CDU and centre-left SDP) took a unique gamble by spending huge sums bailing out its work force.

And that’s because, under kurzarbeit, employers hit by the downturn are encouraged to keep their workers part-time rather than make them redundant. The Federal Employment Agency ( ) will cover up to 67% of lost wages and will also take care of national insurance and other contribution.

The idea is that:

a) mass redundancies often mean a permanent loss of skilled work and specialised trade, especially in the industrial sector. By keeping workers active through a combination of part-time and training, the economy benefits the moment trade picks up – which is exactly what happened as Germany boomed in 2010;

b) the focus on employment and wages spared the country a vicious circle of mass unemployment leading to a drop in both tax revenue and consumer confidence – in turn leading to vast numbers of people defaulting on their mortgages and loans. In other words, as the money reaches consumers directly, it flows back into the market straightaway.

This may look expensive at first (£5.1bn a year), but it saved Germany a fortune in both welfare costs and bailing out banks.

Compare what Germany spent on their bail-out: 1.4% to 2.2% of gross domestic product (between €34bn and €52bn). In Britain it was a staggering 19.8%, almost a fifth of its GDP – and that’s before the official cost was actually discovered to stand at an even higher £850bn.

Of course, the experiment is not without its critics. From the left, it’s often said that Germany’s recovery has taken place at the expense of the rising numbers of low-wage workers and unprecedented wage restraint. From the right, the objection that kurzabeit would simply lead to “a backlog of job cuts”, to quote what the president of the German Bundesbank said last year.

But more recents news report that Germany’s industrial sector is currently in need of 34,000 engineers and 23,000 factory workers. Indeed, a German success story.

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A longer version of the article is here