The German Miracle: Proof of how far an economy can get on a few modest reforms.

The following editorial appeared in the Aug. 15 Wall Street Journal

Angela Merkel is a rare leader on the Continent in recent years to head into an election with a strong economy. She is the luckiest politician in Europe.

Germany’s 0.6 percent growth in the second quarter, according to data released Tuesday, was slightly short of what economists expected, but no matter. Year-on-year growth was 2.1 percent, and some reading the survey data think the country could approach 3 percent growth for the year. Mrs. Merkel is campaigning on the promise of “a Germany in which we live well” — yes, that’s really the slogan — and now she can tell voters she knows how to deliver.

But does she? What’s striking is how little Germany itself has to do with its own growth. Strong domestic consumption is one driver, and households support the economy to a greater degree than many foreigners imagine. But the main cause for the current growth spurt appears to be raising confidence in the prospects of the Eurozone economy as a whole, rather than any specific German policies. Investment, unaccountably low at 20percent or less of GDP for 15 years, is also finally perking up. Here, too, the credit belongs to other parts of Europe. It can’t be due to pro-investment policies from Mrs. Merkel, since she hasn’t proposed any.

Today’s German economy shows how far you can get on a few modest labor reforms such as those passed 15 years ago by social-democratic Chancellor Gerhard Schröder. The French can take heart from this as they contemplate their own overhauls. Mrs. Merkel has prospered politically from the Schröder reforms, which have helped Germany ride out policy mistakes like the high cost of her green-energy projects. The Chancellor seems poised to win a fourth term next month but it’s too bad she’s missing an opportunity to build a more durable economy.

© 2017, The Wall Street Journal.

 

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