After nearly two years of nonstop economic shrinkage, Europe has officially entered the longest recession since the creation of its single currency in 1999. But you wouldn't know it in Stuttgart, Germany. A birthplace of the automobile and the heart of Germany's export engine, this is a prosperous city of rolling green hills, bustling luxury boutiques and tidy white houses occupied by many an affluent engineer and thrifty homeowner. Per capita GDP is a whopping $84,000, more than double that of Berlin. In Stuttgart, Germany's famous Mittelstand firms--small and midsize family-owned export companies--churn out top-notch auto components, lasers, high-tech machinery and health care equipment.
These industrious world beaters are at the heart of Germany's middle-class prosperity; Mittelstand firms employ 60% of the nation's workers and contribute more than half of Germany's economic output. They also embody certain social and moral values, like thrift, conservatism, family orientation and long-term thinking. "Mittelstand means, 'I don't think about the next quarter--I think about the next generation. I don't try to be cheaper but better,'" says Nils Schmid, finance minister for the state of Baden-Württemberg, of which Stuttgart is the capital. "These values stretch out beyond our firms and into our society."
Those values, many in Stuttgart and across Germany believe, are what the rest of Europe should aspire to. If only Europe followed our example, Germans say, there wouldn't be a crisis for us to fix--but now that the crisis is upon us, the rest of the continent must match us in frugality as we all tighten our belts together. As Chancellor Angela Merkel has frequently said, Germans must set an example for others by continuing to rein in spending, cut budgets and practice austerity. "Balancing our own budgets is the solidarity that we show to Europe," says Schmid. "It's right and good that we do so."
The problem is that universal austerity isn't working. The economies of the 17 countries that use the euro as their currency shrank by 0.6% in 2012, and they will likely shrink again this year. Unemployment in the euro zone is 12.2%, and youth unemployment is up to 24%. The social blowback from austerity has become extreme: 10% of Greek schoolchildren go hungry on a regular basis. Right-wing parties are gaining popularity in Greece, Italy, France, Eastern Europe and elsewhere. Street protests and riots have become commonplace after new austerity measures. A recent Pew poll found that people in nearly every major European country put Germans at the top of their "least compassionate" and "most arrogant" lists.