Sweden’s economic relations with Germany extend beyond the most popular destination, which is called border shopping. German enterprise has quietly and peacefully invaded Swedish everyday life. Almost nine-and-a-half million Swedes buy more German than the almost eighty-two million Germans buy Swedish. This pattern has been around for quite a few years.

The statistics are illustrated in the consumption pattern. Look around your home! How many items come from Germany? Washing machine, fridge, stove, toaster and coffee maker? Or go out on the street and note the well-known German car brands, such as Volkswagen, Audi, BMW and Mercedes-Benz. Or find out how many components come from Germany in a so-called Swedish car brand like Volvo. Yet, the car dealer who can sell a Volvo in Germany has to be quite a good salesman.

Germany is Sweden’s largest trading partner. Moreover, Germany is increasingly the strongest political partner in the EU. Although today’s Germany has no superpower ambitions, its political agenda, directly or indirectly, has a decisive influence on European cooperation. In this way, the Swedish agenda is affected, almost axiomatically, by German priorities.

Germany is Sweden’s most important neighbour. Yet today’s Germany is an almost unknown and alien land. In the news, insignificant details of what happens in British or American domestic politics gets more attention than what is happening in Germany. What happens in German states like North Rhine-Westphalia, Bavaria and Lower Saxony have economic and political implications for the federal government in Berlin. This makes obscure German states vital for the whole of Europe, including Sweden.

Last autumn’s elections to the German Bundestag stands as the year’s single most important political event in Europe, despite the fact that, regardless of the election results, in the short-term it is unlikely to lead to any major changes. Maybe that explains the current Swedish indifference and estrangement from Germany. The stability. Our most important neighbour is simply too boring for the current drama in the mass media. In its news ranking, it is more important to cover a derailed in India than all the trains running on time in Germany.

Can Germany Still be Saved? That was a typical title for a German economic bestseller ten years ago. The author, Hans-Werner Sinn, an ever-industrious, combative professor of economics in Munich, criticised in particular how the country had ossified in over-regulated structures – a debatable thesis that contributed to the pessimism that characterised the debate. The defects in the Berlin republic gave rise to anxiety and pessimistic moods. Even the then federal president, Roman Herzog, called the situation miserable. Germany as a model of society was on the way to disappearing into the deep mists of history.

Today the exact opposite question is being asked: why has Germany fared so well through the crisis? Today, Germany is expected to be Europe’s economic locomotive. In the middle of the crisis, today’s Germany is simply a socially and politically stable society with an efficient, high-performance economy.

Especially in France and Italy, it is being asked whether Germany can serve as a model. The French senate last year sent a delegation to study how Germany was transformed. The question was whether Germany’s success could be copied. Those who rely on the daily economic data find some statistical support for the view that Germany is doing well. Even after the crisis year of 2009, there has been a new recovery. The growth is still weak, but the demand in the world for Made in Germany hit a new record, the curves for employment are pointing up at record levels and the public finances are back under control.

More interesting than numerical exercises is to look deeper at what lies behind Germany’s success. As I see it, one can identify a number of factors that make up a very special blend of old and new. Let me point to three.

The seemingly old-fashioned is that German entrepreneurs and politicians held strongly to manufacturing and refused to listen to the Anglo-American proponents of the blessings of the service society. In particular, Germany has responded indifferently to the development of a deregulated financial services market.

About a third of the active population works in industry, and the industrial sector represents about 28 percent of GDP, unlike countries such as France, where the industrial sector has long been shrinking.

Among the special factors is the ability to execute large unpopular changes in a relatively orderly fashion. When there was big criticism ten or fifteen years ago directed against rigid structures, Germany was perceived as impossible to reform. The political response was a reform package called Agenda 2010, which was adopted in 2003.

The core of the radical reforms was named after Peter Hartz, former personnel manager at Volkswagen, Social Democrat and member of the metal union. The ‘Hartz package’ introduced a working line to increase employment and prevent long-term unemployment. More restrictive rules for unemployment benefits, incentives for education, openings for part-time and low-paid mini-jobs have contributed to a more dynamic, flexible labour market without making it free for hire-and-fire. By extension, the Hartz reforms continue a general discussion about the general statutory minimum wage to limit income gaps.

The main criticism of Agenda 2010 was that it created unfair and deepening inequality. It came so strongly from within social democracy’s own ranks that Chancellor Gerhard Schröder finally defiantly proclaimed ”time for a saunaThis is my best guess here.This is my best guess here.!”, and decided to get out of party politics. He is now described in the Wall Street Journal as the brave man who saved the modernisation of the German economy. But the salvation divided his party and cost him his job in the election of 2005. Since then, Angela Merkel has reaped the benefits of Agenda 2010 and the German union leaders commend her for listening and arguing when Schroeder just said ”time for a sauna!”

Also highlighted among the special factors is the dynamic of the large sector of small and medium-sized German companies that have gained leading positions in global markets. They have their historical roots in the old small-state ideology that marked Germany before the nation’s unification under Bismarck.

Germany’s unique position as a world champion in exports is explained only partly by German big business. Moreover, one must look for an explanation of the many small and medium-sized enterprises are the backbone of the economy – this Mittelstand for which is so often predicted a quick death in global competition. But no other country has so many global market leaders as does Germany, as many Hidden Champions.

Business analyst Hermann Simon, who for many years has analysed this phenomenon has calculated approximately 2,700 global market leaders, and of them 1,300 from Germany. In his in-depth studies he shows, for example, this applies especially in the southern and western parts, in Baden-Württemberg, Bavaria and North Rhine-Westphalia.

Often, the companies have their roots in traditional activities that have been developed. In the southern German region of Swabia, there have been watchmakers since the Middle Ages. There is, for example, the small town of Tuttlingen, with 35,000 inhabitants, which has more than 400 companies that are specialised in the precision mechanics industry, particularly in surgical instruments and medical technology. A family business like Karl Leibinger Medizintechnik developed directly from watch making, and sells a variety of surgical instruments in over 100 countries. Today, the company is managed by the fourth and fifth generations.

A similar pattern can be seen, for example, around Göttingen where companies specialise in measuring instruments. The expertise originates from the mathematical faculty of the university, which was a world leader in the 1800s with Carl Friedrich Gauss as ”the prince of mathematics”. Here, 39 companies formed an association that calls itself Measurement Valley. Modern measurement technology is the key to the quality, precision and safety of competitive products in diverse areas.

All around there are similar examples of regional clusters, like the manufacture of knives around Solingen, or of pencils around Nuremberg. Germany emerges as a centre of innovative and globally competitive engineering. A foundation for this is the profitable family business that is largely self-sufficient in capital. In symbiosis with the local education system, the very high professional skills of the employees are maintained. They remain, however, often anonymous to the general public because their products are components at the beginning of the processing chain. Businesses can have dominant positions in the world market, but find it convenient to remain unknown. The less the boss appears, the better the company. The long line of Hidden Champions is comprised of workhorses that rarely parade in the spotlight.

In the autumn of 1989 the great turning point occurred. The story began to accelerate suddenly, and to general astonishment. The big debate in West Germany in spring 1989 was a common, contentious German issue: how long should stores have to stay open, especially on Saturdays? The church and the unions tried to limit the hedonistic consumer society. Nothing in the general discussion foreshadowed what was to come; on the surface there was a deceptive normality.

From this surreal early summer in 1989, I remember one reportage trip in Baden-Württemberg. Mikael Gorbachev was coming to visit, and Lothar Späth, who was the head of the state government, was wrestling with a bizarre problem: Gorbachev’s wife, Raissa, had a desire to visit a typical German working class family in Stuttgart.

The diminutive Lothar Späth, who I got to know through a common friend, Kurt Månsson from Hagestad, was tearing out his thin hair. Should one really show something as typical as a car worker at the Daimler-Benz? One who lived in their own house and in the yard had a relatively new car – a swanky, new Mercedes? No, it would only be perceived as a propaganda trick of the old Soviet type. Finally, Späth picked out a modest family who lived in a simple apartment, where both were employed at the post office.

In Stuttgart city centre, the General Secretary of the Soviet Communist Party was hailed as a folk hero by cheering, dependable bourgeois south Germans; while in East Berlin the dictator’s wife, Margot Honecker, threatened anyone that would dare to demand glasnost and perestroika in the GDR with violent repression. The East German party’s chief ideologue, Kurt Hager, took a more carefree attitude. Just because they are changing the wallpaper in Moscow does not mean we have to do it in East Berlin, he believed, and quickly got the nickname ‘wallpaper-Kutte’.

Some time later, I searched, along with Richard Swartz, for the oddly well-informed personality Wolfgang Seiffert, who was a professor in Kiel in the odd science of ‘socialist legal systems’ – but this was probably just a cover for something else. Seiffert had, in fact, defected from the GDR, where he for many years had been the party leadership’s expert on the Soviet Union.

Professor Seiffert said to us that Gorbachev, during his visit to West Germany in the early summer of 1989 tried to interest Helmut Kohl in the most loaded of all issues: the unification of Germany. It was seen as a provocation.

In West Germany, most lived, even those at the highest levels, in the same propaganda notion as the old misguided leadership in East Berlin. East Germany would be the world’s tenth industrialised country. But Michael Gorbachev probably knew better; East Germany was a dilapidated bankrupt. In retrospect, it has been shown that even the leading East German economist, Jürgen Kuczynski, came to the same conclusion from the letters he published, in which he repeated with growing despair a warning to Erich Honecker of decay. The letters were never answered.

If Seiffert had accurate information, then Gorbachev, back in the early summer of 1989, sounded out the possibility of doing business with Helmut Kohl – a deal that, in the slang of the business world, could be called a shell company; the insides of it, that is the world’s tenth industrialised state, were recorded as worthless and ready to be scrapped. The only question was what you could get for the shell.

The deal was done a few months later in the gradual process that eventually led to the unification of Germany. It was, of course, a fundamentally inescapable political settlement that meant West Germany took over the bankrupt estate.

The wise, West German, Social Democrat politician and economist, Klaus von Dohnanyi, became interested immediately in the practical conditions for reunification. He summarised the problem in a pleasing image: a merger would be like trying to put a BMW engine in a Russian tractor; the same problem that arises often in computer language that is called interface. German unification was not a merger, rather a takeover, albeit a friendly takeover. Transfers from west to east are usually estimated at about four percent of West Germany’s GDP. Every year. Over twenty-five such years, this corresponds to a full year of West Germany’s GDP. In the spring of 1989, a study was presented that still has a high topicality: the Delors Report on European Economic and Monetary Union (EMU). It had been commissioned at the summit in Hanover in 1988 and was adopted a year later at the summit in Madrid by all the twelve heads of government of the then EC.

The thoughts behind EMU were first raised at a summit in 1969 in The Hague by the German chancellor, Willy Brandt, and the French president, Georges Pompidou. The then prime minister of Luxembourg, Pierre Werner, was asked to investigate the matter. The Werner Report, which was adopted in 1971, suggested a three-step process that would be crowned with a common currency in 1980. For Europeans, it would be a hedge against currency crises caused by the United States withdrawing from the Bretton Woods system.

With the economic crises of the 1970s, the Werner Report ended up on the shelf.

From the mid-1980s, the then EC began to recover. When the plans for a genuine single market began to materialise, the idea of ??economic and monetary union returned. It was based mainly on two thoughts: one was economic, that EMU would strongly tie together the common market with increased competition and transparency to make the market more economically efficient. Twelve currencies in a market does not even happen in Marrakesh, Helmut Schmidt used to argue.

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The second motive was political, that Europe already had in practice a common currency, namely the German Deutschmark. Formally or informally, the various national currencies were linked to the Deutschmark and were thus largely dependent on the monetary policy of the Bundesbank. In particular, in Paris this was perceived as politically uncomfortable.

Jacques Delors summoned the twelve central-bank governors to his inquiry. Among them was Karl-Otto Pöhl, the chief of the Bundesbank, who was against the whole EMU project and thought he could torpedo it by making demands on German monetary policy. These demands, however, were essentially accepted by the inquiry.

Like Pierre Werner, Jacques Delors suggested a process in three stages; it would include the common currency under a common central bank, but also strong macro-economic and fiscal coordination. The EMU included not only the monetary aspect, not just an ‘M’. A strong ‘E’ would evolve into a figure of thought, which is often called political union.

When the Delors Report was adopted in Madrid in the early summer of 1989, it was lacking a timetable. At that point, the great turning point had not yet occurred. German unification was not a contentious issue as long as it lacked actuality.

When the story began to accelerate in the autumn of 1989, the attitude of the top political leadership of the EC was changed at the same time as it was marginalised by the forces that set the agenda. The popular protests in Eastern and Central Europe, together with the consensus between Mikael Gorbachev and George Bush (Sr.) steered the revolution. François Mitterrand and Margaret Thatcher made futile last-minute attempts to stop German unification. The drama culminated at the summit in Strasbourg in December 1989, where François Mitterrand blackmailed his friend, Helmut Kohl; he could accept the unification of Germany if Germany could accept a timetable for the EMU project. Kohl would sacrifice the Deutschmark. This became the basis of the historic political deal that linked the unification of Germany and the single currency. After Strasbourg the negotiations began that ended at the Maastricht summit two years later.

The core piece of the Maastricht Treaty is EMU, but through the compromises in the negotiations, it was ultimately only a strong ‘M’, much to Jacques Delors’ anger and Helmut Kohl’s weary desperation. Anyone who wants to understand how this major omission could occur should remember that this was the year (1991) that preceded the Maastricht and it was marked not only by the unification of Germany but also the end of the Soviet Union and the civil war in the former Yugoslavia. The benevolent could argue that Chancellor Helmut Kohl had too much to do.

The failures of Maastricht have returned now that the leading countries in the euro zone are trying to find a way out of the crisis by correcting and reconstructing EMU. Despite the successes, even Germany is struggling with problems, among which is often noted the aging population becoming a growing burden – the Methuselah problem. This Germany, which has long refused to open up its labour markets to the new EU members, today needs migrant workers. Another huge strategic problem lurking around the corner is the future energy supply.

Germany’s strong economic integration in Europe contains deeper complications, both politically and economically, than is apparent from the vulgar slogans of the discussion. Germany is not a loser. On the contrary, the single currency has in many ways favoured German exports by the euro being weaker than the Deutschmark would have been. In addition, the entire euro zone got the same low capital costs such as Germany, which is boosting purchasing power in southern Europe and opened up export opportunities for Germany. The German surplus came to be reflected in southern deficits. This is a banal reason why the German model cannot be replicated in countries like Italy.

When it comes to Germany’s relationship with France, it should be added that these two states are completely different in their history and construction. France is still largely Bonapartist and centrally managed from Paris. Germany, however, is regionally decentralised by federal law, which has favoured the emergence of successful small and medium-sized enterprises. In France, there is no favourable climate for the equivalent of Germany’s Mittelstand. This is critical when the focus of crisis management is increasingly moving to the requirements for enhanced competitiveness. This has opened this most difficult of debates across Europe, and in particular for all those countries that have not yet come to terms with the imbalances in their public finances. Enhanced competitiveness means far-reaching structural reforms, like Agenda 2010 in Germany. In countries like France and Italy, political opportunities for something similar are still missing, although François Hollande and Mario Monti are increasingly talking about it. Enhanced global competitiveness is easier said than done. Across Europe, the crisis has hit big groups, particularly young people, and has reinforced an attitude that might be called ‘reform resistance’.

In addition, in Germany there prevails a traditionally very different social climate than in France and Italy. In so-called ‘Rhineland capitalism’, negotiations, compromise and cooperation are strived for – a spirit of cooperation that critics ten years ago thought would lead to stagnation. Today, it is recognised as an asset that has contributed to Germany’s ability to compete in the global competition. In a typical book from last year, two provocative economists claim that Germany now has a rosy future. The rich years of harvest are now expected.