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Germany's secret to staving off the eurocrisis? Manufacturing.

Germany is 'strong and growing' more than almost any other Western economic power, thanks in large part to the country's dedication to its small- and mid-sized manufacturing companies.

By Isabelle de PommereauCorrespondent / October 25, 2012

Huge van carriers transport containers at the Burchardkai container terminal in Hamburg, Germany, in October 2012.

Fabian Bimmer/Reuters


Haßfurt, Germany

For years, people in this tranquil northern Bavarian town turned a deaf ear when outsiders ridiculed Germany for holding on to what the world saw as an outdated industrial model.

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And it’s a good thing, as Germany’s industrial backbone has experienced a comeback. Its Mittelstand – the small- and mid-sized companies that are the backbone of its economy – helped the country recover from the 2008 financial crisis faster than most countries. Now it is fueling Germany’s export-oriented growth.

According to a study by the Cologne Institute for Economic Research (IW) presented in Berlin Monday, Germany ranks as the fifth best industrial location among 45 world economies, a big jump from the 14th place it held in a similar study in 1995. 

"We did the right thing," says Johannes Petry, who works for Unicor, one of the world's leading manufacturer of corrugators – the machines making exterior pipes that protect anything from underground telephone cables to sewer pipes. Over the past decade, the 135-employee Bavarian firm has doubled its gross income to roughly €22 million ($28.6 million) this year. Demand is growing fast in countries that are modernizing their infrastructure, from Hungary to Arab countries.

'Strong and growing'

Unicor epitomizes the success of the German Mittelstand. Highly specialized and diversified, those companies of 500 or fewer employees have a knack for reinventing the wheel and tapping into world niches quickly. They make the screws, dowels, pipes, parts for machines, tools, and cars that countries like China are buying frenetically as they are industrializing.

Today, Germany is "strong and growing" more than almost any other traditional economic power in the Western world, IW Director Michael Hüther said Monday.

Germany's manufacturing sector creates 23 percent of the country's GDP, compared with 10 percent in France and Great Britain, according to the study.

In the late 1990s, the picture was different. Beset by record unemployment of 4 million, Germany was dubbed the "sick man of Europe."

But unlike other Western European countries, Germany resisted switching to a more service-oriented economy. Instead it consolidated its core industrial base, with more money on research, deals with labor unions on wages, and bold structural reform.

It increased its competitiveness when a Social Democratic government, that of Gerhard Schröder, embarked on "Agenda 2010:" a reform of the country's social-welfare system and labor market now considered one of the most far reaching made by any Western society in recent years.


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