of the coming american current-account adjustment which will make the task that much harder? Frozen in time In Europe, Germany is clearly the toughest nut to crack. It is plagued with rigidities and saddled with a huge, unaffordable welfare state. As a result its trend gdp growth rate, at 1.5%, is the lowest in Europe. Until recently, germany was also the least interested in reform While the rest of Europe started, tentatively, to free up labour markets in the 1990s(creating more than 10m new jobs), Germany did virtually nothing. So when the global economy weakened in 2001, Germany was hit the hardest. But at long last even germany is beginning to make a move Four months ago, if you were planning a dinner party on a saturday night in Germany and had failed to buy the food before 4pm your guests would go hungry. Every shop would be shut, by law. But new opening hours introduced in June give the would-be Saturday host until 8pm to stock up. After that, he should head for the nearest petrol station which can stay open much later. Though officially allowed to sell only" travel provisions", petrol stations have stretched the term to include such obvious motoring essentials as wine ice-cream and washing powder. Nor is ice-cream after hours the only innovation. In March Germany,'s chancellor, gerhard Schroder, launched Agenda 2010" a package of reforms aiming to cut wage costs and make the economy more flexible. These include shortening the period during which unemployment benefit can be drawn, raising pension contributions and revamping health-care benefits. Mr Schroder also wants to bring forward a long-planned reduction in the top rate of income tax The idea is to have all these reforms in place by the beginning of next year. Though this is far from certain to happen there are encouraging signs. Mr schroder has secured agreement from the opposition on sizeable chunks of the agenda, including health-care reforms and bringing forward the planned tax cuts If successfully implemented Agenda 2010 would have big long-term benefits. It would make German labour markets substantially more flexible and reduce the burden on employers of high pension and health-care costs. In a recent study the imf concluded that reducing the rigidities in Europe's employment and product markets to America's levels would boost the regions output by 10%. Agenda 2010 may not turn Germany into America, but according to Adam Posen, an expert on Germany at the Institute for International Economics in Washington, DC, it is the most ambitious package of reforms Germany has seen in 40 years Nor is Germany the only European country trying to make its economy more flexible. The French government passed a big pension-reform package in July defying widespread strikes Although the package excludes mollycoddled and strike-prone groups such as railway and utility workers, it goes much further than anything attempted before. Next on the agenda is the nationalisation of French health care, to be tackled later this year. Fine efforts, but will these reforms(assuming they materialise) actually boost demand? After all, without higher domestic demand Europe will not be able to play its part in rebalancing the global economy In the long term the answer must be yes. Structural reform will allow Europe 's economies to grow faster, thus allowing a sustainable rise in overall spending. But in the short term theof the coming American current-account adjustment, which will make the task that much harder? Frozen in time In Europe, Germany is clearly the toughest nut to crack. It is plagued with rigidities and saddled with a huge, unaffordable welfare state. As a result, its trend GDP growth rate, at 1.5%, is the lowest in Europe. Until recently, Germany was also the least interested in reform. While the rest of Europe started, tentatively, to free up labour markets in the 1990s (creating more than 10m new jobs), Germany did virtually nothing. So when the global economy weakened in 2001, Germany was hit the hardest. But at long last even Germany is beginning to make a move. Four months ago, if you were planning a dinner party on a Saturday night in Germany and had failed to buy the food before 4pm, your guests would go hungry. Every shop would be shut, by law. But new opening hours introduced in June give the would-be Saturday host until 8pm to stock up. After that, he should head for the nearest petrol station, which can stay open much later. Though officially allowed to sell only “travel provisions”, petrol stations have stretched the term to include such obvious motoring essentials as wine, ice-cream and washing powder. Nor is ice-cream after hours the only innovation. In March Germany's chancellor, Gerhard Schröder, launched “Agenda 2010”, a package of reforms aiming to cut wage costs and make the economy more flexible. These include shortening the period during which unemployment benefit can be drawn, raising pension contributions and revamping health-care benefits. Mr Schröder also wants to bring forward a long-planned reduction in the top rate of income tax. The idea is to have all these reforms in place by the beginning of next year. Though this is far from certain to happen, there are encouraging signs. Mr Schröder has secured agreement from the opposition on sizeable chunks of the agenda, including health-care reforms and bringing forward the planned tax cuts. If successfully implemented, Agenda 2010 would have big long-term benefits. It would make German labour markets substantially more flexible and reduce the burden on employers of high pension and health-care costs. In a recent study the IMF concluded that reducing the rigidities in Europe's employment and product markets to America's levels would boost the region's output by 10%. Agenda 2010 may not turn Germany into America, but according to Adam Posen, an expert on Germany at the Institute for International Economics in Washington, DC, it is the most ambitious package of reforms Germany has seen in 40 years. Nor is Germany the only European country trying to make its economy more flexible. The French government passed a big pension-reform package in July, defying widespread strikes. Although the package excludes mollycoddled and strike-prone groups such as railway and utility workers, it goes much further than anything attempted before. Next on the agenda is the rationalisation of French health care, to be tackled later this year. Fine efforts, but will these reforms (assuming they materialise) actually boost demand? After all, without higher domestic demand Europe will not be able to play its part in rebalancing the global economy. In the long term the answer must be yes. Structural reform will allow Europe's economies to grow faster, thus allowing a sustainable rise in overall spending. But in the short term, the