Germany's economic problems are well-documented, and the generally prevailing opinion is that it is but a hair's breadth away from a situation akin to Japan's deflationary spiral. The situation is not as bad as that yet, and today's Ifo numbers showed a bounce back upward in both expectations and the current conditions assessment. Still, it's a far cry from a recovery and unemployment is still rising relentlessly, which will keep Schröder on the defensive for quite some time yet. In Japan the Koizumi administration has been talking a lot about reform, but has been unwilling and/or unable to implement any major structural reforms. The poor economic conditions in Germany have certainly not been lost on either German politicians or the population, and the gloom has become the norm. What has been lacking thus far is a blueprint for pulling Germany out of its slump. There have been encouraging noises now and then from various corners, including the government, about the need for reform. Nothing much has happened. Small steps have been taken on the pensions front in the last years, but these steps have been tiny and tentative.

The economic malaise is now encouraging others to speak out more boldly. A sign of the times is an interview Guido Westerwelle gave in the Neue Osnabrücker Zeitung over the weekend. He is the leader of the small right-wing liberal FDP party; as always, the moniker "liberal" in the European context refers more to the classical liberalism of the 19th century rather than the so-called liberalism of US politics. Most of these European liberal parties have becoming a firm part of the socialist welfare state consensus, and have at best argued for a bit less socialism rather than provide a clear alternative. The German FDP has been moving the right direction on this front, although their election campaign was ruined by Möllemann scandal.

Westerwelle's comments were a frontal attack on the German labor unions, which are bastions of unreconstructed socialism. Their leaders are overtly political (and to the left of Schröder), and their antediluvian economics are part of Germany's structural problems. For instance, they argued that wage moderation had clearly failed to create new jobs, and therefore demanded huge wage increases in order to create more demand. They think companies exist solely to provide jobs to workers. But despite their many protestations about wanting to create jobs, unions have played a role stifling Germany's economy. Industrial relations are supposed to be consensus-based. Workers' representatives are present on the boards of companies, and unions have considerable influence on corporate policy. But what's even worse is that most wage negotiations are done on an industry-wide basis, not company by company. This means that companies will get stuck with wage settlements negotiated at a high level that takes little to no account of their actual situation. This exacerbates the problems that corporate Germany faces.

So Westerwelle took aim at the unions, demanding that they be robbed of their power. He accused them of being more interested in the protection of the power and privileges of union functionaries than in either the workers or the unemployed. And their policies were "a plague for our country," and then added that "functionaries like Mrs. Mönig-Raane and the Green Verdi-chief Bsirske are the pall-bearers of the welfare state and of the prosperity in our country." (Verdi is a public sector union.) What's so remarkable about these comments is that they would have been unthinkable a few years ago. This is an encouraging sign that there are perhaps glimmers of hope for the German economy after all. Just dealing with the unions is hardly going to be enough, but the unions' opposition to all measures of economic liberalization has made reforms a lot harder. At least the economic crisis is bringing forth some much-needed new thinking. One should not overestimate the FDP's or Westerwelle's influence though. In the last election the FDP got 7.4% of the vote, which was good by its recent standards. But with Germany's economy is the state it is in, any movement in the right direction should be welcomed.