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Recently, Hans-Werner Sinn, head of Ifo, a Munich-based economic research institute, pointed out that Germany is battling the consequences of five economic shocks: globalisation; the European Union and its enlargement; the introduction of the euro; the opening up of central and eastern Europe; and German re-unification. Each one of these big events has been good for the world as a whole, but has posed particular problems for Germany. It is perhaps remarkable that the country has weathered so many unanticipated blows so well, a tribute to the economy's resilience[1].
germany01
This week's (August 20-26) cover in The Economist: Germany's Surprising Economy

Here is just one bit (via Tyler): Thanks to the intense pressure that they have been under in the past few years, Germany's big companies have restructured and cut their bloated cost base. This process has for once been helped by the trade unions, which had been a stubborn obstacle to change. German workers have belatedly recognised that change has become essential, which is why they have been ready over the past year or so to accept such innovations as more decentralised pay bargaining, longer hours and even wage cuts. Thanks in part to this new flexibility, unit labour costs, a benchmark of competitiveness, have fallen sharply relative to other countries. In the past five years, Germany, long the most costly place in Europe in which to do business, has won a new competitive edge over France, Italy, the Netherlands and even Britain. That is a big reason why, last year, it regained its position as the world's biggest exporter.

See here for further discussion.

[1] Ready to motor?, The Economist
stxx meinte am 23. Aug, 01:46:
To me Mr Sinn is "von Sinnen".

Germany has been recognized during the last century as a country with first class engineers and high tech products. That competition from Japan is an economic shock is a misleading argument. It came not as a surprise to Germany. Furthermore, Germany is still one of the most successful exporters in the world.

With the EU enlargement a common market was created. That is of little benefit for a big exporting country. Huh? Is that a joke? And what have the economies of scale to do with that? Were they recently forbidden in big countries?

In my eyes, the third so-called shock is not the dinimishing of a risk premium for foreign currencies (Who would demand 300 BP more from a good government with a strong currency because its name is not Germany?). It rather reflects the German influence on the ECB which has as its primary goal inflation killing. Hence, there are no different inflation premia charged in the economies.

To summarize the arguments behind the fourth and fifth shock: How can the economy that is predetermined to benefit the most from a unification and a EU enlargement lose so badly? For example, in Eastern and Western Germany people speak the same language (hence a faster knowledge diffusion) and a historical and cultural connection was there. Even infrastructure existed. Furthermore, the west was able to provide funds for investments in the east to create a highly competitive industrial nation. What went really wrong? Any suggestions besides the usual suspects (high regulation of the labor market; excessively costly welfare state)? 
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typekey:junkcharts meinte am 24. Aug, 06:21:
the chart and the text
Here is another case of a chart not fully supporting the text. The text said (my italics)

Thanks in part to this new flexibility, unit labour costs, a benchmark of competitiveness, have fallen sharply relative to other countries. In the past five years, Germany, long the most costly place in Europe in which to do business, has won a new competitive edge over France, Italy, the Netherlands and even Britain.

Now, the chart actually shows both Spain and Italy (and possibly even France) having higher unit labor costs than Germany five years ago (which was year 2000 by my count). For much of the period depicted, Germany was the least costly place so this chart does not depict a turnaround.

Secondly, the advantage over Britain is certainly the most shocking assertion and yet mysteriously Britain is left out of the plot. Since this data is available, there must have been a conscious decision to omit it. Why? 
Mahalanobis antwortete am 24. Aug, 18:34:
RE: unit labour costs
Now, the chart actually shows both Spain and Italy (and possibly even France) having higher unit labor costs than Germany five years ago (which was year 2000 by my count).
The plot shows the the average unit labour cost relative to the euro-area average with the base year set to 100 for all countries. So it perfectly could be the case that unit labour costs in Germany are still the highest in the euro-area... The Economist really should have plotted the data in levels. It's interesting that the source for the time series is the EC and the OECD. Mix it, baby? (It's easy to see that those series are smoothed anyway).

I did a quick-and-dirty chart showing the average unit labour cost relative to the euro-area (obtained from eurostat, unfortunately, they only have the series "Unit labour cost growth") for Germany and the UK with base year 1994. It's really questionable if Germany currently has such a competitive edge.

relunitlabourcosts 
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typekey:junkcharts meinte am 25. Aug, 01:27:
thanks
thanks for pulling out the data. It does look suspicious, doesn't it? Is this a case of fitting the data to the story?

I don't think I get your point about relative costs though. For a given year, the euro-area average is a fixed number; and so if Germany's point is below those of France and Italy, doesn't it imply that Germany has lower unit labor cost for that year? 
Mahalanobis antwortete am 25. Aug, 04:05:
Relative Unit Labour Costs
Example:

Hypothetical Unit Labour Costs (*100):
Germany: 120 110 100
France: 80 85 95
.
.
.
Average (of 12 countries): 70 75 80

Setting first observation to 100:
Germany: 100 92 83
France: 100 106 118
.
.
.
Average: 100 107 114

Relative Unit Labour Costs:
Germany: 100 87 73
France: 100 99 104
.
.
.
Average: 100 100 100

Any other suggestions? 
typekey:junkcharts meinte am 28. Aug, 06:29:
Using your data
Your example now clearly tells me the source of my confusion. It has to do with the use of "double indices". Taking your lead, I designed a different chart that brings out the story more clearly. Look at my post here:

http://junkcharts.typepad.com/junk_charts/2005/08/relative_relati.html

If you have the data series from eurostat, it would be nice to see the economist chart plotted in this new design, with Britain added in! 
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