How Germany went from 'sick man' of Europe to economic miracle

October 13, 2011

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(AP/Markus Schreiber)
Chancellor Merkel says that Germany has a "duty and responsibility to make its contribution to securing the Euro's future."

In the 1990s, the U.S. was enjoying the fruits of a technology boom. The era created the first generation of Internet titans, from AOL to Yahoo. Unemployment hovered at around five percent. And U.S. consumers couldn’t stop consuming.

Back then, the Anglo press thumbed its nose at Germany for being the “sick man” of Europe. Having recently reunified with the much poorer East, the Germans struggled with inflexible labor laws, uncompetitive wages, and high rates of long-term unemployment.

Fast forward to the present, and the situation looks very different. The global recession has exposed the vulnerabilities of the all-mighty American consumer. Unemployment at home is at nine percent. Meanwhile, despite high taxes and high wages, Germany is the world’s second largest exporter. And the fate of European Union rests largely in the hands of Chancellor Angela Merkel.

To help us understand this reversal of fortune, we speak with Peter Hall, a professor of European studies at Harvard University and co-editor of the book Varieties of Captialism: The Foundations of Comparative Advantage. He sheds light on the structural and cultural differences between the American and Germany economies.