For the past month, the streets of East Germany have been awash with angry protests, from both the left and the right, over cuts in the country's generous welfare system. Meanwhile, the giant engineering-to-electronics group Siemens has agreed with trade unions to extend the working week for its employees from 35 to 40 hours with no extra pay - in order to stave off competition from East Europe, where labour costs are cheaper. Other companies may follow suit.

Germany is not alone in using generous welfare provision as an excuse for economic stagnation. Also over the Summer, France, another large Euro-zone economy perhaps not doing as well as it could be, began talks with national trade unions over repealing the 35-hour-week, brought in four years ago, to put a cap on the number of hours that staff can be forced to work. The Netherlands and Belgium are considering similar steps.

The argument for this shake-up seems simple enough. If labour markets are not sufficiently fluid, businesses are going to be less dynamic and their voice on the world stage will be weakened. As Ernest-Antoine Seilliere, Vice-President of the Union of Industrial and Employers' Confederations of Europe (UNICE), bluntly put it at a press conference on September 9: "UNICE pleads for a moratorium on all social legislation coming from the EU that imposes additional obligations on companies."

Many economists have questioned the rationale behind France's 35-hour working week. The logic goes something like this: if workers are limited to the number of hours they can put in, then the same job will need more workers to complete, and so employment levels will rise. But, as Alexandra Jones of...

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