The country's economic problems have plunged its citizens into a mood of Gothic soul-searching, writes Derek Scallyin Berlin

The town of Wittenberge lies 120 kilometres north-west of Berlin and 35 years in the future. The streets of this former East German town are tidy but empty. Young people are an increasingly rare sight here, the result of a low birth rate and the dramatic rate of migration to western Germany in search of work.

Now there are just 2,500 children and teenagers in this town of 21,000 people, and one in three Wittenbergers is over 60. The average age is 47, and the unemployment rate of 27 per cent is nearly three times the national average.

Walking around the town is, at times, like a visit to the recent communist past, but Wittenberge's problems of today are Germany's problems of tomorrow.

"Wittenberge is ageing drastically. This city is a model of how the rest of Germany will be in 2040," says Dr Harald Michel, head of the Berlin Institute for Applied Demographics.

But Klaus Petry, the mayor of Wittenberge, has little time for demographics. "Everywhere in Europe the population is ageing - it just happened to hit us first," he says. "People talk about the doomsday scenario happening here, but we're going to get going and solve our problems."

Petry's optimism and energy are rare qualities in Germany these days. Wittenberge represents the bleak future awaiting Germany, the experts say, a future some pessimists feel has already arrived. Germany is experiencing a gloom boom. Decades after the economic miracle dragged the country from the ruins of war to the peak of its economic power the country appears to have hit the skids, and Germans are unsure whether to try the brake or abandon the burning wreck.

Record unemployment and stagnant growth have prompted Germans to ask fundamental questions about themselves and the society they live in. The public debate has provided a fascinating look into the German soul, ruined only by its bad- tempered whingeing tone.

Germany may be the greatest contributor, financially and idealistically, to the European project, but many here watched the weekend's eastward enlargement with mixed feelings. For the first time in decades Germans feel vulnerable.

The well-worn thesis goes as follows: Germany is the sick man of Europe, dragged down by an unproductive and expensive workforce, overly generous social welfare and the huge, ongoing cost of reunification. Irish people can allow themselves a little statistical Schadenfreude at the fact that the average Dave in Dublin now earns €4,000 more a year than Hans in Hanover.

In Germany the gloom boom has been a boon to Cassandra columnists. They no longer argue about whether Germany's demise is imminent, merely about whether, figuratively, the country will expire from cholera or the plague.

"Our affluence is vanishing but also the admiration of other countries. Eastern and western Germany continue to grow together only in the speeches of politicians," writes Gabor Steingart in his book Germany: Decline Of A Superstar, one of the many vexed volumes on the best-seller list.

Opposition politicians are in on the act too, intoning with the solemn regularity of a church bell that, in Europe, Germany is now bringing up the rear.

The gloom is so Gothic that, at times, it's almost as if Germany has given up trying to be the best in the class and is now enjoying being the worst, after realising that humiliation can be a fetish as well as a disaster.

"Germany doesn't need reform, it needs a dominatrix," sighed a friend recently. Until sadomasochism becomes an integral part of Western economic policy, however, Germany has to find more orthodox solutions to its problems.

A good starting point on the problem checklist is German unification, in 1990, involving a friendly takeover of one country by another, which over the course of 14 years has turned hostile.

A recently leaked secret government report admitted that the unprecedented reconstruction of eastern Germany has been a €1.25 trillion failure that is dragging down the rest of the country with it.

"The ongoing internal west-east transfer of €90 billion annually and other consequences of German unification are directly or indirectly responsible for about two-thirds of the country's economic weakness," said the report. Its authors noted that only 40 per cent of easterners have jobs and that most of the east's young people move to the west in search of work and a higher standard of living.

"People in the west blame reunification for everything. But all it did was accelerate the problems that were coming our way anyway," says Hans-Werner Sinn, one of Germany's most respected economists.

Germany's financial problems are severe: of the the annual federal budget of about €250 billion, a staggering €77 billion goes on pensions, €27 billion on unemployment benefit and €21.5 billion on subsidies. On top of this, Germany forks out €22.5 billion each year to Brussels, a fifth of the entire EU budget. The national debt stands at €1.3 trillion and has breached euro-zone guidelines every year since the launch of the single currency.

A year ago Chancellor Gerhard Schröder introduced proposals to reform German public life, balancing tax cuts with healthcare and social-welfare cuts. Looser hiring-and-firing laws and lower wages would, he promised, solve the unemployment problem and cure the "German disease" of high wage costs without compromising the security sought by workers. "If we don't reform, our model healthcare and pension provisions will, within our lifetime, no longer be affordable," argued Schröder.

Many of the reforms are still a work in progress, but already the chancellor has come up against what Robert Leicht, a columnist with weekly newspaper Die Zeit, calls the Germans' "fatal tendency for catastrophism".

"Nothing changes in Germany until a catastrophe looms. But when something changes, then this change is seen as the catastrophe," says Leicht.

Half a million union members took to the streets across Germany recently, demanding that cuts be more evenly spread and "socially just", a term commonly heard in Germany but rarely heard in the English-speaking world since the coming of Margaret Thatcher. The Iron Lady is experiencing something of a revival among conservatives, thanks to a new book, Maggie Thatcher's Radical Cure: A Recipe For Germany?, which puts forward an intriguing but unlikely history-repeating solution to Germany's problems.

The debate in Germany is so fierce because everything is to play for, namely Germany's "Rheinland capitalism" consensus model of economic development. Collective bargaining autonomy, industrial co-determination and generous welfare-state provisions delivered decades of stability and growth. But the German motor has stalled, and even Siemens, once renowned for taking care of its workers, has slashed its German operations and moved jobs abroad.

"We're seeing a break-up in German society that we never had before, but we're also losing perspective. Those who are moaning loudest are the middle and upper classes, as a way of defending what they have. Those at the bottom, with nothing and no voice, are not heard," says Elke Lenz of Berliner Tafel, a charity that feeds the homeless of the German capital.

Despite its problems and new challenges, the rush to write off Germany at home and abroad has seen many myths get mixed up with reality. Germany is still a trading giant, exporting more than any other country in the world, easily outperforming the US or Japan.

Germany can still hold its own in the key industrial and engineering sectors, according to a recent study, while only France attracted more foreign direct investment last year. Germans may complain about high taxes, but they actually pay less income tax than the citizens of most other EU countries, including Ireland.

Its economic standing may have taken some knocks, but Germany has never been more active on the world stage since Schröder's government made the historic decision to send peacekeeping toops to Kosovo and Afghanistan and used the lessons of German history to speak out with moral authority against the Iraq war.

Despite the gloom boom Germans are still a surprisingly happy bunch: more than 75 per cent of people here say they are happy with their quality of life, according to a survey published last week.

But the happiness gap between east and west shows the danger of talking simplistically about the problems of a country of 83 million people that stretches from the Baltic to the Alps.

Using economic statistics alone to label Germany the basket case of Europe also has its dangers. Germany has a world-class health system and an unbeatable infrastructure, and economists who praise Ireland's fiscal policies and economic performance have probably never waited for treatment in an Irish hospital or sat in a Dublin traffic jam.

"Germany and Ireland are two polar opposites," says Hans-Werner Sinn. "Germany is well equipped in many areas but economically stagnating, while Ireland is outperforming Germany economically but has considerable catching up to do, particularly in infrastructure."

Even Germany's media Cassandras have to admit that their horror-filled statistics cannot tell the future, just project the present.

"Germany's current situation is not a prognosis for the future even if it appears that way in the public debate," says Gabor Steingart, author of Germany: Decline Of A Superstar.

Kerstin Knote, a historian from Berlin who has lived in China, Britain and the US, says: "Normal Germans are slowly realising that we have to change things to keep things up.

"It's only when you come back to Germany from abroad that you realise how good we have it here."