Germany continues to suffer from anemic economic growth. In 2004, the German economy grew at disappointing 1.7 percent, and German analysts have forecast 2005 growth at 0.7 percent. This low growth reflects Germany’s large structural difficulties hampering its long-term economic expansion. German labor markets must become more flexible, and a weakening corporate sector must be revived. While the end of 2004 saw German union power wane and corporate investment increase, it is up to the German government to foster a more prosperous environment for businesses.

While higher oil prices and a stronger Euro may have lowered Germany’s growth, its main barrier to continued growth has been its lagging labor sector. Although a recent Wall Street Journal investigation found a German worker to be more productive by gross domestic product per hour worked than its US counterpart, a staggering 9.6 percent of the German labor force remains unemployed. Economists like IMF European Department head Michael Deppler believe that Germany’s problem is its misallocation of productive labor to unprofitable industries. This has been caused by high corporate taxes and rigid labor regulations.

A possible solution would be to institute work hours in firms. Like France, Germany has imposed a statutory maximum on hours worked per year, which equates to roughly 20 days of paid vacations. Civic holidays considered, German workers can take over four weeks’ vacation per year. The Bundestag’s attempts to reduce holidays have thus far been met with much opposition. A plan by Finance Minister Hans Eichel to eliminate German Reunification Day, October 3rd, was quietly shelved after it was denounced as unpatriotic.

Germany also uses a system of temporary labor employment that is harmful to its economy. These so-called “mini-jobs,” which provide a monthly salary of 400 to 800 euros per month, are essentially payroll tax-exempt employment opportunities. While this may be an effective way to bring discouraged workers back into the labor force, German economist Viktor Steiner believes it has a net negative effect on employment. He argues that rather than drawing discouraged workers into partial employment, it has drawn young and old workers—one million and counting—away from full time employment, pulling workers away from the labor force and increasing unemployment.

A weakening private sector has also played an important role in Germany’s recent economic woes. Part of the corporate discontent stems from the continued domination of German Worker’s Boards, the Betriebsräte, over the labor scene. In the immediate post-war era, the Betriebsräte functioned cohesively with fledgling German industries and helped German consumerism and industry take off. However, their continued influence over the stable, mature economy of today runs the risk of squelching private enterprise. For example, a Betriebsrat has the ability to determine the distribution of salary bonuses and to block possible employment for labor coming from other EU countries. This inability to exploit a growing and more fluid labor supply has made German corporations inefficient. While labor influence is not implicitly harmful, it can and has caused a decrease firms’ profits.

Formal worker-employer cooperation is also necessary to stem the recent slowing of economic growth. After all, with less profit from firms, the chances of a decent wage for a worker drop significantly. In mid-2004, building worker’s union IG Bau did not even attempt to hold wage-raise negotiations. Siemens workers’ unions also accepted a weekly work hour extension from 35 hours to 48 hours in its German cellular phone facilities.

Moreover, Germany’s future economic growth hinges on the government’s policies. Even Agenda 2010, a plan of action that Chancellor Gerhard Schröder promised in 2003 would lead to greater employment, does not attempt to reform labor and attempt to create a more corporate-friendly environment. A tight election between challenger Angela Merkel and incumbent Schröder brought out the controversy inherent in the idea of economic reform. While Merkel wanted tax cuts and laws friendlier to businesses, Schröder prefered to stick to his Agenda 2010 policy and focus primarily on health care and reducing employment. These two visions, unfortunately, are not necessarily complementary.

The economic situation in Germany is such that the government must act. However, the reality is that whatever fiscal policy is pursued, Germany’s economic prospects are just as tumultuous as its election.