... Germany has an approach to economic policy that served it extremely well for several decades after World War II and that in some ways have continued to serve it well. It would be wrong to lose sight of the economic miracle of Germany's postwar economic recovery and the decades of strong growth, low inflation, and low unemployment. In the mid-1970s, German unemployment was less about 2.5 percent, less than half of that of the United States, and its inflation rate was close to zero. During those years, Germany also experienced a very satisfactory rate of real economic growth that substantially narrowed the gap between per capita real GDP in Germany and in the United States.
But the German policy approach that worked so well in those years has ceased to perform as well. Although the inflation rate has remained low, the unemployment rate has risen to nine percent and the rate of real economic growth over the past several years has declined to significantly less than that of the United States. In the very short run, Germany's GDP has actually been declining and its budget deficit is approaching the three percent limit imposed on European Union countries by the Masstricht treaty. Looking ahead to the very long run, Germany faces even higher taxes than those that it faces today as a result of the increasing cost of providing services and pension benefits to an ageing population. The difficulty, both political and economic, of raising taxes also limits Germany's ability to share in the proposed European and NATO defense activities...
