Continuing good news from Germany

April 2007

With growth forecasts regularly being revised upwards in recent months, it appears that Germany is back on track in terms of economic growth. In addition to the resulting higher tax revenues, the reduction in unemployment will take the pressure off the public purse so that the budget deficit can, in theory, disappear rather sooner than later. But for this to happen, it is important for the government not to spend the extra money. This is particularly imperative as rock solid public finances are needed to cater for demographic developments over the coming decades. The need for restraint is also a crucial message for the UK, as despite very good growth rates in recent years, the budget still shows a substantial deficit which may not be sustainable in the event of an economic slowdown. Therefore, Gordon Brown will still have his work cut out for him.

On the political front, Chancellor Merkel’s presidency of the EU has opened up new opportunities for practical co-operation as a common interest between the UK and Germany has emerged in terms of combating climate change. Both countries appear to have developed a willingness to address this issue and take a lead to convince others of the urgency for action. In addition, joint efforts in this field could also show the rest of Europe that a lot can be achieved without solely focussing on institutional set ups. Furthermore. work needs to continue on liberalising Europe’s economies especially as we have seen some nationalistic tendencies in recent take-over battles. Both the British and the German governments can take a lead and, if they do so, they will find many followers – especially amongst the smaller member states which suffer most from overprotective behaviour. I am also confident that Germany’s interest in driving forward Europe will not whither after the end of her presidency and hope that the EU will be able to develop a new drive towards greater liberalisation.