Germany Is On The Move Finally

On the surface, it's almost impossible to see how Germany could be any kind of model for the rest of Europe. Helmut Kohl, the mighty former chancellor who stitched up the open wounds of his divided nation, is now roundly vilified as a mere backroom politician taking money from arms dealers and friendly foreign leaders. The Christian Democratic Union party is in tatters. And economically, the strong deutschemark has been largely replaced by a weak euro. Meanwhile, France and Britain show healthier economic growth than their powerful neighbor.

But look again at Germany Inc. Rhineland Capitalism--that often-rigid model of social consensus and behind-the-scenes dealmaking among big business, trade unions, and politicians--is cracking wide open. Change is in the air everywhere you look. That jewel of Corporate Germany, Mannesmann, is trying to fight off Britain's Vodafone AirTouch PLC not by appealing to German politicians and unions but to its shareholders, whether they are in Dusseldorf or Detroit. Frankfurt's booming Neuer Markt is aiming to be the European Nasdaq for thousands of eager entrepreneurs. Meanwhile, sweeping changes are being proposed for Germany's corporate tax code aimed at removing the stiflingly high capital-gains taxes paid when companies sell stakes in other companies. These changes could usher in the most profound restructuring of German business since World War II. And a quiet cultural revolution is underway at the country's 385,000 privately held companies, now starting to realize that growth lies in tapping more and more muscular capital markets.

Germany, in fact, is starting to move. And from being a drag on the modernization of Europe, Germany could very well soon become the model and the pacesetter. If Berlin can now step up to the plate and tackle thorny problems such as needed pension reforms, the impact on the rest of Europe could be profound. When smaller European countries such as Ireland and the Netherlands adopt successful high-growth stategies, few notice. When Europe's largest economy--and the planet's third mightiest--adopts them, the effect could be electrifying.