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Workers assemble a vehicle at Ludwigsvelde Daimler-Mercedes plant. (Doug Saunders/The Globe and Mail)
Workers assemble a vehicle at Ludwigsvelde Daimler-Mercedes plant. (Doug Saunders/The Globe and Mail)

Hope: Germany's secret to recovery Add to ...

At 3 p.m. on Wednesday, Andreas Schieve puts one last fitting on a Mercedes truck, hangs up his tools on the assembly line and attends a brief meeting to hand the line over to the night-shift workers. Then he walks out of the factory gates and into town, ready for another four-day weekend.

Like most of the workers at the Ludwigsfelde Daimler-Mercedes plant, the 50-year-old man would rather not be forced to work three-day weeks about a third of the time.

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"It's harder to make the rent payments and my wife and I don't have extra money to save for holidays and new appliances," he said while having a Chinese dinner at a shopping mall outside the plant, where he's worked more or less continuously since 1976. His wife works as a cleaner.

"But I do realize that it's better than being laid off. It's hard, but it's not as if I'm in danger. We're not living in Greece here."

While the rest of Europe is just beginning to crawl out of crisis and into the first tentative rays of growth and recovery, Germany is positively booming. Export sales are up dramatically, spurred especially by Chinese sales; consumer spending has returned sharply; banks and housing markets are unscathed - and, most significantly, while the rest of the continent and the United States experienced harsh job losses, Germany has actually seen unemployment fall this year to 7 per cent, below Spain's boom-time level

A big part of Germany's resilience can be found in factory towns like these and in the weekly pay statements of workers like Andreas Schieve.

In most other European countries, Mr. Schieve would have been laid off in late 2008, when the credit-driven economic downturn hit Europe hard and orders for this plant's commercial trucks dried up. Orders fell from 60,000 trucks a year to around 30,000, and the work force should have been slashed to match - more than 1,000 layoffs.

But Germany did something different. While its neighbouring countries spent hundreds of billions bailing out banks, financing infrastructure and stimulating the economy, Chancellor Angela Merkel's conservative-liberal coalition government also took a very large, unique gamble by spending huge sums of money bailing out its work force.

In a system known as kurzarbeit, or "short-time work," the German government pays up to two-thirds of the salary of employees who would otherwise be laid off, as long as they remain employed. The employer is expected to cover any hours actually worked and to keep up their pension and benefit payments.

Starting in 2009, this formerly marginal scheme became the core of Germany's recovery plan, and the number of Germans on kurzarbeit rose from tens of thousands to 1.5 million, costing the German government billions.

The workers say they find their tenuous employment inconvenient and complain that the money is neither as good nor as predictable. Some of Mr. Schieve's friends flew to Tuscany on long-weekend package vacations, only to be disciplined when the Friday shift was suddenly reactivated and they were nowhere to be found. But compared to other Europeans, they are extremely fortunate.

For Germany, it has been a huge gamble, for if the economic downturn lasts beyond 2010, the cost of having millions of private-sector employees effectively on the state payroll will become unaffordable and counterproductive, triggering an even worse crisis.

Yet it seems to have worked, to an amazing degree: Despite suffering an economic contraction of 5 per cent last year - during which unemployment doubled in the United States to 10.1 per cent and approached 20 per cent in Spain and Greece - Germany actually saw its unemployment rate fall to 7 per cent, its lowest point in 17 years.

The system has driven up government debt sharply and means the German recovery won't have the commensurate boost in consumer spending other countries will see. But German officials believe kurzarbeit has spared their country a far larger catastrophe and has allowed it to experience a boom in the midst of Europe's slump.

The logic works like this: If Mr. Schieve had been laid off, he and his wife would have been forced out of their three-bedroom rented house. The landlord, facing the depressed housing market of eastern Germany, would likely have defaulted on the mortgage. Meanwhile, the shops and services of Ludwigsfelde, a one-industry town, would have failed due to the layoffs and created their own defaults. Mr. Schieve and his fellow laid-off workers would have gone on welfare, costing the state large sums of money without generating any tax revenue.

The mortgage defaults generated by Mr. Schieve and a million people like him would have driven several banks into insolvency, forcing much more expensive state bailouts. And their mounting social-assistance bill and vanishing income-tax payments would have created a chronic government deficit.

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