http://www.cia.gov/cia/publications/factbook/geos/gm...

Germany's affluent and technologically powerful economy- the fifth largest national economy in the world - has become one of the slowest growing economies in the entire euro zone, and a quick turnaround is not in the offing in the foreseeable future. Growth in 2001 - 2003 fell short of 1%. The modernization and integration of the eastern German economy continues to be a costly long-term process, with annual transfers from west to east amounting to roughly $70 billion. Germany's ageing population, combined with high unemployment, has pushed social security outlays to a level exceeding contributions from workers. Structural rigidities in the labor market - including strict regulations on laying off workers and the setting of wages on a national basis - have made unemployment a chronic problem. Corporate restructuring and growing capital markets are setting the foundations that could allow Germany to meet the long-term challenges of European economic integration and globalization, particularly if labor market rigidities are further addressed. The government is also starting long-needed structural reforms designed to revitalize the country's economy. In the short run, however, the fall in government revenues and the rise in expenditures have raised the deficit above the EU's 3% debt limit.

http://www.house.gov/jec/growth/govtsize/govtsize.ht...

There has been some controversy over the slowdown in European rates of economic growth since 1970. One view is that the slowdown is to be expected, that European growth rates from 1945 to 1970 were unusually high, and that the more recent experience is a return to normalcy. An alternative view is that the expansion of the European welfare state after 1970 has stifled the spirit of enterprise and has had negative growth consequences. The findings above clearly are consistent with this alternative perspective.

http://www.fcpp.org/publication_detail.php?PubID=786

The Wirtschaftswunder of the first period was due in part to reconstruction following the devastation of the economy during the Second World War. But the basic reconstruction had been completed largely by 1960, and the high growth rates in the following decade took place while the country still operated as a market economy, free from the burdens of the welfare state and pervasive regulations.

“There is widespread agreement that an industrial relations system of the traditional
British type, which combines low levels of co-ordination of both employers and unions with a high coverage of the workforce by collective bargaining agreements, leads to high levels of equilibrium unemployment. These effects are exacerbated by high labour taxes and generous unemployment benefits that continue indefinitely with little pressure exerted to find or accept work. The response of the Thatcher administration to these problems was to weaken trade union power, reduce the coverage of collective bargaining, lower the replacement ratio (i.e. the ratio of unemployment benefit to earnings) and generally shift the system of pay determination towards the American model.
The Irish reform programme went in the opposite “neo-corporatist” direction, in favour of the social-partnership approach. The first such deal was agreed in 1987 and the most recent, designed to last into the new century, was signed a decade later. The partnership agreements purchased wage moderation via the promise of cuts in income tax, ensured that social welfare payments remained immune from public expenditure cuts and generally supported the replacement ratio.”