Unemployment in Europe has risen during the 70s and early 80s to double digit rates, rates which are not considered likely to fall much in the remaining years of the 80s. This is so in enough countries to encourage some to speak of a ‘European disease’. Those of us who live in Britain have long been familiar with the ‘British disease’, as have the Dutch with their ‘Dutch disease’ (supposedly related to North Sea energy resources). This paper suggests that these earlier national ailments are precursors of the general European one to which attention has more recently been drawn — notably by Professor Giersch who has spoken of a ‘market sclerosis’ in Europe, especially in the labour market (Giersch, 1985). (Also see OECD (1985, p. 38)).
However, in spite of this provocative general opening we wish to focus in this paper on West Germany, and thus to highlight a specific case of what may well be a general phenomenon. Our motivation is fourfold: to widen the analysis of the possible disease to a country in which there is wide interest; to stimulate other European researchers to work along the lines of analysis portrayed here; to follow up the echoes sounded in the comments of authoritative national students (e.g. Giersch, op. cit., and de Grauwe, Fratianni and Nabli, 1985), and finally, to utilize a full macroeconomic model of the Federal Replublic of Germany in this direction of research.