Press Release - 17th January 2008

In a new paper for Global Vision, economists David B Smith and Dr Eugen Mihaita of the University of Derby ask the question, ‘What can Britain learn from Germany?'.  By comparing five areas - fiscal policy, monetary policy, labour market reform, industrial commitment and government - the authors conclude that the answer to this question is ‘a great deal'.

Their analysis finds that, although somewhat limited, the ‘Agenda 2010' programme of labour market reforms introduced by former Chancellor Schröder in 2003 was well crafted and the efforts of German industry, which has worked hard to bring its labour costs back into line with its international competitors, deserve commendation.  Whilst Germany and most of Continental Europe have attempted to consolidate their fiscal positions in recent years, Britain has gone the other way.  OECD figures show that general government outlays accounted for 41.2% of the market-price measure of GDP in Britain in 1997 compared with 48.3% in Germany, 49.4% in what was to become the eurozone and 35.4% in the US.  Over the past decade, the share of government outlays in UK GDP has risen by 3.4%  to 44.6%, while Germany has cut by 4.4% to 44.3%, the eurozone has retrenched by 3 percentage points to 46.4% and the US has seen a rise of 2 percentage points to 37.4%.  

The recent crossover in the relative strengths of the two nations economies is not so much the result of revolutionary economic reform in Germany, but rather the result of a decade of Gordon Brown. Smith and Mihaita argue that, "If there is a villain it must be Gordon Brown, who - having inherited a healthy mid-Atlantic economy with tax and spending burdens low by Continental standards, and a de-regulated labour market - has spent the past decade inexorably forcing the British economy into the high spending and regulatory straight jacket that has so crippled the performance of ‘Old Europe', while dissembling about Prudence, fiscal responsibility, and the need for a globally competitive economy."