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Britain was once the "sick man" of Europe. Now, allegedly, Germany is. Its economy lies stagnant. Its dole queues stretch to more than four million people. Deflation looms. Britain beware, cry foes of the euro, tying our destiny to the fallen German giant would drag us down too.

Or so it seems in the fantasy world that anti-Europeans inhabit. Such delusions are doubtless a comfort to those who still dream dewy-eyed of the Empire, think the Second World War was only yesterday and never venture beyond these shores to confront their prejudices.

Many of them drive Volkswagens, Audis, BMWs and Mercedes, of course, and have houses stuffed with appliances from Siemens, Bosch and Miele. But no matter. It is their conviction that Germany is a basket case that lags far behind Britain.

Wake up! Fly to Germany on Ryanair for £9.99 (thanks to the price-cutting stimulated by the deregulation of the EU airline market) and open your eyes. Spanking new sports cars rocket along the autobahns.

High-speed trains whisk passengers around – and arrive on time. Clean, modern hospitals treat patients promptly. Well-funded schools crank out world-beating engineers. Britain can only aspire to such private and public affluence.

Not convinced? Consider the facts. Reunited Germany has absorbed 18m people from the impoverished ex-communist east, yet the average German is still richer than the typical Briton.

Although the burden of bringing the east up to the west’s level still amounts to 5% of national income each year, Germany’s economy has grown by 29% since reunification – as much as Britain’s.

Just imagine how a country that cannot even manage to upgrade the west coast main line would struggle to integrate a much poorer neighbour.

German manufacturing workers are 29% more productive than their British counterparts, according to the National Institute of Economic & Social Research. They earn £12 an hour on average. In Britain, they make £9.50.

So much for the myth that Britain has overtaken Germany. Not only is Britain still well behind, it isn’t even catching up. Figures from the US Bureau of Labor Statistics show that whereas British labour productivity has risen by 19.8% since 1992, it has soared by 29.2% in Germany.

Since 1999, when Germany swapped the Deutschemark for the euro and supposedly went into decline, productivity in both Britain and Germany has risen by 7.3%.

Admittedly, the German economy has had a bad year. Its economy is at a low point in the business cycle. It labours under excessive regulation and inflexible unions that keep unemployment painfully high.

But its difficulties scarcely compare with Britain’s in the 1970s, let alone, as George Trefgarne recently argued in The Telegraph, Germany’s in the 1930s.

Moreover, its current woes have little to do with the euro – and so Britain would not import them if it joined the single currency. The undervalued euro is boosting German exports. Although the global economy is weak and world trade is falling, they rose by 10.9% in the year to September.

The European Central Bank’s recent half-percentage-point cut in euro interest rates will also help. For sure, Germany might have even lower rates if it still had the deutschemark – but it would almost certainly have a stronger currency too. So it is far from obvious that it would have a looser overall monetary stance outside the euro.

Nor would Gerhard Schröder’s government necessarily be spending more were it not constrained by the EU’s Growth and Stability Pact. Its budget deficit is set to hit 3.8% of gross domestic product (GDP) this year. That is large by German standards.

Although Britain’s deficit ballooned to 8% of GDP under John Major, Germany’s has not exceeded 3.5% in recent history. It has a long tradition of fiscal conservatism – and the Bundesbank was always quick to curb any profligate urges.

Germany’s high unemployment is a tragedy, but it should not affect Britain’s euro decision. Within the eurozone, Belgium’s unemployment rate is more than double Britain’s, the Netherlands’ less than half. There is no reason why joining the euro should cause Britain’s jobless rate to rise to Belgian levels, or fall to Dutch ones.

Anti-Europeans are propagating a politically motivated hoax to tar the euro – and hence Britain’s prospects of joining it – by blackening Germany’s economic record.

But in fact, the single currency is a success. It is creating a genuinely single market – which free-marketeers would welcome were they not blinkered by their Europhobia. Germany and the other euro countries are reaping the benefits – while Britain is missing out.

According to Eurostat, Germany’s trade with other EU countries leapt from 27.2% of GDP in 1998 to 32% last year. Britain’s fell from 23.2% of GDP to 22.8%.

Inward investment – long the lifeblood of the British economy – is also suffering. In 1998, according to the UN, Britain received 28% of foreign direct investment into the EU – and Germany only 9%. But since the euro’s launch, the tables have turned.

Britain’s isolation from the euro makes it an unattractive base for serving the European market. Its share of investment into the EU is set to slump to a mere 5% this year. Germany will attract 18% – a vote of confidence in its economy and the euro more generally.

In the eurozone as a whole, GDP per person has risen faster (by 2.2% a year) than in Britain (2.1%) and the United States (0.9%) since the single currency’s launch, according to the IMF. If Britain signs up to the euro, it will be joining a successful economy, not a failing one.

Posted 03 Jan 2003 in Published articles

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