Lex: Germany

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Germans sometimes describe saving as the futile attempt to become rich out of one's own miserly income. That theory is being put to the test by corporate Germany. On Thursday, Henkel became the latest Teutonic household name to step up cost cutting efforts, joining the likes of Volkswagen, Siemens, Deutsche Telekom, BASF and Deutsche Bank.

Profitability has improved, with 2005 pre-goodwill net margins of companies in the Dax index expected to reach 7.5 per cent. That looks lofty even by US standards, although comparisons are skewed, notably by the heavy weighting of utilities and telecommunications in the Dax. But with the euro's strength eroding its competitive position, Deutschland AG is keen to slim down. Henkel has been dieting since 2001, but cash conversion remains weak. Its latest portfolio reshuffle has filled the detergent-to-adhesives conglomerate's coffers. Investing some of the receipts in restructuring, instead of further acquisitions, is welcome. But Henkel arguably has little choice, with rising raw material prices and competition.

Ironically, cost cutting by others is partly responsible for its woes, alongside fears of further reductions in Germany's welfare provisions. Both changes should prove healthy eventually. But for now, they have depressed consumer demand and done little to boost corporate investment. Given the limited scope for monetary and fiscal stimulus, the long term benefit could prove some way off.

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