Germany’s boom is due to long-term investment, competitiveness and worker co-operation

Something curious has been going on in the eurozone. On the fringes, the news has been terrible. There have been bail- outs for Greece and Ireland, and the speculators have been circling around Portugal and Spain.

But at the heart of the single currency, it has been a different story. Germany had its best year of growth last year since the boom that followed reunification two decades ago.

What is the explanation for this? The pat answer is that it is all about China, with Germany simply the European outpost of the east Asian growth miracle. It is certainly true that Europe’s biggest economy has been well placed to exploit the rapidity with which China has resumed its industrialisation following the brief downturn of 2008-09. Germany specialises in the capital goods, such as machine tools, that countries need when they are building up their manufacturing strength.

The export boom has been given added strength by the problems on the eurozone’s periphery, which have led to a drop in the value of the single currency on the world’s foreign exchanges. That has made German goods even more competitive.

But the idea that Germany’s strong performance in 2010 was down to fortunate timing is nonsense. Unlike Britain, forever in search of a quick fix solution to deep-seated economic problems, Germany has realised that the secrets of success are hard work, ferocious quality control, reliable long-term sources of finance and co-operation between policymakers, companies and trade unions. Corporatism is not the dirty word it is in Britain.

To put things into context, Germany entered the single currency more than a decade ago at a disadvantageous exchange rate. It has spent the intervening years making itself more competitive, not only by a willingness of workers to accept draconian pay restraint but also by identifying growth sectors of the future (such as solar technology), by improving products, by an emphasis on after-sales service and by investment in a well educated workforce.

Mervyn King used to receive comments on the Bank of England’s quarterly inflation report from the German football international Thomas Hitzlsperger when he played for King’s team Aston Villa. As yet, no British-born player in the Premier League has shown a similar interest in the intricacies of UK monetary policy.

There is, though, one caveat to this success story. Germany’s growth is unbalanced, with its reliance on exports and investment the mirror image of the excess consumption in Britain and the US. This matters, not just for the weaker countries of the eurozone which have been unable to live with Germany’s hyper-competitiveness, but for the global economy as a whole, where the imbalances between the big exporters and the big importers have started to widen again.

If those stresses were to result in a second leg to the crisis, Germany would suffer badly, as it did two years ago. But on past evidence, it would find a way, gradually perhaps, of digging its way out of the hole.

Business: Manufacturing sector | guardian.co.uk