Modell Deutschland über alles

MUCH of the rich world is fascinated by Germany. Despite being at the heart of sclerotic Europe, its GDP per head has risen by more than any other G7 country's over the past decade. Unemployment in the troubled euro zone is at its highest since the single currency's birth; in Germany it is at a record low. In most rich countries manufacturing exports have been hammered by foreign competition; in Germany they remain powerful drivers of growth. No wonder hard-pressed political leaders in France, Spain, Italy and Britain are talking wistfully of becoming more like Germany.

Germany's recent success has both new and old roots. Only a decade ago, still struggling with the costs of unification, it was a basket-case. It has since bounced back to show that a high-wage country can succeed in top-end manufacturing, not least by holding down unit labour costs. The Germans have long since repaired their public finances—the budget deficit is barely 1% of GDP, public spending as a share of GDP is well below the European average and German bond yields are at record lows. Thanks mainly to the Agenda 2010 reforms begun by the Social Democrat-led government of Gerhard Schröder in 2003, Germany has liberalised many of its labour-market rules, one reason for today's enviably low unemployment.