Germany has changed. The Continent’s largest economy, once dubbed the “sick man of Europe”, is today no longer an EU laggard. A look back at the state of the nation five years ago makes clear that, while a number of – in some cases – radical reforms may not have completely transformed the country, they have given it a thorough shakeup. Whereas until recently, growth rates well below the EU average were regarded virtually as an unalterable fate, Germany has now made up a great deal of ground.

The economic upturn of the past few years is most evident in the unemployment trend. The 5m unemployed that Germany had at the beginning of 2005 were a clear reflection not only of the country’s weak growth, but also of the largely encrusted structure of its labour market. Unemployment has since fallen below 3.5m. This trend is not something that just happens by itself. As recently as the second half of the 1990s, real economic growth of 2 per cent was needed to create additional jobs. Thanks to more flexible labour market arrangements, the moderate wage policy pursued by unions and management and greater incentives for people out of work also to accept low-paid jobs, the “employment threshold” – the level of economic growth required to trigger a rise in employment – has dropped to about 1.25 per cent.