Is Germany heading the same way as Japan?

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Is Germany heading the same way as Japan?


  • International debate is growing over whether Germany might potentially develop into a troublespot in the global economy similar to Japan. Even though negative parallels cannot be overlooked, such a development can still be avoided – as regards economic growth, political elbowroom and stability in the banking sector.
  • Despite some similarities in the symptoms – especially growth weakness – the causes of the problems vary in many cases. Since the bubbles in the stock and real estate markets burst, Japan has suffered particularly as a result of the banking crisis. Even though Germany is behind in its consolidation and modernisation efforts, that country’s banking sector is far from being in the same state as Japan’s.
  • Japan is mired in a macroeconomic vicious circle of mini-growth, deflation and high savings ratio. With key interest rates near zero and excessive government debt, monetary and fiscal policy are virtually unable to counter the trend. Germany is in better shape in macroeconomic terms.
  • The causes of Japan’s inability to drive through reforms are partly rooted in the very close relations among politicians, bureaucrats and businesses (“iron triangle”), which lead to mutual dependencies, collusion and corruption. In contrast to Japan (“Japan Inc.”) Germany’s economy is much more open. The “Deutschland AG” is on retreat, and German policies are under peer pressure in the EU.
  • Germany’s growth weakness, by contrast, is often linked with the special factor of German unification. According to an EU study, around two-thirds of the growth gap to the EU is directly or indirectly attributable to unification, in particular to the high taxes and social security contributions required to finance German unity.
  • The second major factor is a lack of competition in goods, services and labour markets, which explains about one-third of the growth gap. The regulations governing the labour market – such as the national and regional wage agreements – are evidence of the deep-seated mistrust in Germany of market-based solutions.
  • Finally, there is an aversion to reforms based on market-economy approaches which is mainly due to the lack of competition among political parties, proportional representation, the form of federalism and the clout of the trade associations and interest groups – a reflection of Germany’s desire to be a consensus society.

    For a full analysis see

    Deutsche Bank Research website.  

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