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Lesson From Germany: If You Want a Middle Class, Keep Your Industrial Base

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BERLIN -- Traditionally, Great Britain has held a position between the European Union and the United States. This position is also expressed in economic and fiscal policy.

Great Britain's leadership continues to believe that the economic future of Europe lies in services and finance. Germany's position has always been -- regardless of the party in power -- that national economic success in the long term depends on a competitive industrial base, with medium-size enterprises alongside the service sector pillar.

When I was chancellor, my nickname was "the car chancellor." I was rather honored by that because we always promoted manufacturing and understood the number of jobs associated with the well-paying auto production and the supply chain that feeds it.

All parties in Germany support the policy of keeping well-trained people on the job, even when there is a business cycle downturn, in order to maintain the skill base required to pick up production when the cycle turns again.

This is far better than having workers out in the street supported by state welfare.

As a result, manufacturing in Germany presently accounts for about 24 per cent of GDP -- compared to 16 percent in Great Britain and only 12 percent in France.

If you compare the economic situation in these countries, you will rapidly realize the success of the German approach. When you look at the global division of labor, it is easy to see that Germany's policies have given it a clear competitive advantage. We need to reinforce this advantage rather than watering it down.

There are further differences as well between Germany and the Anglo-Saxon world. These differences are seen most clearly when we compare the American and British approach to transparency and regulation of financial markets to that of continental Europe. In continental Europe, greater transparency and regulation has been high on the agenda, while Wall St. and the city have led the Americans and British to resist further moves. When we tried to get this on the international agenda at the G-8, we were blocked by the U.S. and the UK.. The G-20 agreed to more transparency and regulation, but implementation has been a failure ever since.

The question for us is whether democratic politics will win out over the power of financial markets. Who will win the day is unclear in this battle, but the division between the Anglo-Saxon world and Germany is very clear.

Given recent statements by the British prime minister, it looks like this divide will not be overcome in the short term.

This division with Great Britain extends to the future of the European Union. We can't point fingers of blame because everyone has their reasons.

But we need to be clear about the consequences.

Therefore, in the future we will have a Europe of "two speeds." A core Europe that grows together more quickly politically and a fringe Europe in favor of greater autonomy.

Those like Great Britain who want to stop European integration should not be able to decide on the fate of those who do want to forge ahead. The unwilling should not be able to put a brake on the willing.

I am convinced, however, that the countries which do not wish to be part of a greater European integration will lag behind politically and economically.

Europe is at a crossroads. The wider European Union needs to decide whether to promote growth, speak with a common voice on global issues and play a significant global role in the 21st century -- or to accept that the world will move on without Europe.

Gerhard Schroeder is the former Social Democratic chancellor of Germany. His remarks are adapted from a roundtable discussion at the Berggruen Institute of Governance recent "town hall" meeting in Berlin.

This blog is part of a series on "Europe: Beyond the Crisis," produced by The Huffington Post and the Berggruen Institute. For more information on the Berggruen Institute on Governance, visit berggruen.org.