European Economy. Economic Papers. Germany's growth performance in the 1990's

3.3.5 Conclusions
Taken individually, no single item comes close to the importance of rigidities in the labour
market and the costs of re-unification in explaining Germany’s under-performance. Put
together, however, the remaining liberalisation potential in network industries, inefficient
government spending, a relatively low market capitalisation, and outdated restrictions for
market access hold back growth in Germany. This alone does not directly clarify why growth in
Germany lags behind that of other European countries who often have similar or other
regulatory problems. This difference is explained both by the fact that regulatory progress was
higher elsewhere and that Germany’s structural problem come on top of a rigid labour market
and unification-related problems. As a result, the break on growth is exacerbated because
rigidities in one area cannot be compensated by flexibility in another. The over-stretched budget
in Germany should not be used as an excuse for not reforming, especially in areas with little
short-term costs and clear benefits. The lack of progress in liberalising shop opening hours is
here highly symbolic for the difficulties Germany has in reforming its economy.

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