German engine is spluttering

LIKE a veteran Mercedes long deprived of body repairs and engine tune-ups, Germany, the economic pacemaker of Europe, has dawdled into the slow lane.

The country's general election on 22 September may bring a change of government, but the economy will remain at stalling speed.

Two generations of Britons have grown up since World War II with the view that Germany is the best-run country in Europe. There are still facts to back that perception. Take a trip on one of Germany's cheap and sleek mainline trains and spot the difference with Britain's over-priced Third World railways.

But Germany's impressive public infrastructure is in far better condition than the country's internal economic fabric. The whizz of the Wirtschaftswunder - the economic miracle - has given way to a whimper.

Since the end of the Cold War and the reunification 12 years ago of the well-heeled capitalist West and the struggling communist East, Germany has been struggling to make ends meet. Economic growth is just 0.75% this year and has now been below the European average for 10 successive years. Unemployment is still above 4m. The country is wrestling with the challenge of trimming its generous but cripplingly expensive social security and labour market system.

In the poll in two weeks, disappointment with his failure to curb joblessness is likely to deprive the Social Democratic Chancellor Gerhard Schröder of his majority in coalition with the ecologist Green Party.

But doubts over the economic policies of the opposition Conservatives and the qualities of their leader, Bavarian premier Edmund Stoiber, will limit the swing to the Right.

The most likely outcome is a hung parliament and a Grand Coalition of the Social Democrats and the Christian Democrats, ushering in more questioning and confusion about the economic reforms which Germany needs to stimulate growth and bring down unemployment.

All this matters to Britain. Germany is Britain's biggest trading partner after the US, accounting by itself for twice the exports we send to Canada, Australia, South Africa and Japan combined. Large German companies such as Siemens, Bosch and Linde are major investors in Britain. If the German economic machine - by far the weightiest in Europe - stutters then Britain's dynamism suffers, too.

Moreover, German economic weakness throws a cloud over Prime Minister Tony Blair's plans for a referendum on the European single currency.

Britain will join only if the electorate believes this is good for jobs, growth and investment. Signing up when the Euro's most important constituent is beset by intractable economic problems is unlikely to appeal.

The Germans seem to have become more human as a result of unification. Their seemingly effortless zoom along the postwar economic autobahn always seemed uncanny to outsiders, and the 'we know best' strictures of German economists tended to grate on the nerves.

Gordon Brown, not the president of the Bundesbankis now the chief economic finger-wagger in Europe.

Germany's setbacks have contributed to European harmony in another way, too. The rises in German debt, unemployment and taxation over the past decade have set a less exacting standard for the rest of Europe. This has made it easier for countries with huge economic challenges such as Greece, Italy and Belgium to merge their currencies with the DMark.

However, a euro with a weak Germany at its core will not offer permanent stability.

We should wish the next German Chancellor - whether Mr Schröder or Mr Stoiber - the best of British luck. Whether or not we join the euro, stronger leadership and economic recovery in Germany will help Britain, too.

David Marsh is also UK director for the German management consultancy Droege & Comp.