Its economy may be thriving now: but as elections loom, the country's vaunted industrial base faces a skills shortage of startling proportions
On the edge of deep green mountain forests in the centre of Germany – where east once met west – lies Germany's "toy town". As in every corner of Germany right now, smiling election candidates beam out from posters tied to lampposts in Sonneberg with snappy slogans promising "safe jobs" and to "keep Germany strong".
There is little mention of looming problems that many experts predict will send Germany tumbling down the economic league tables over coming years. Instead, they are playing on the strengths of Sonneberg's mix of small and family-owned companies – the kind that dominate the buoyant German business landscape. Toy town is, for now, enjoying the latest of many resurgences through the centuries.
"Sonneberg and the area around it has one of the highest employment levels in Germany," says Christian Dressel, who runs the local job centre. "Businesses have set up here … we have car industry companies, electronics firms making vacuum cleaners and TVs, toymakers and a training school for toymakers."
In its heyday at the turn of the 20th century, Sonneberg was the world's leading toy producer. Mothers and fathers, son and daughters, crammed into home workshops and, with their neighbours, made up production lines that churned out every fifth toy in the world. One house would make dolls' wigs, the next along stuffed the bodies and another would craft their faces.
When Sonneberg was swallowed up into the German Democratic Republic, the communist authorities merged its many toymakers into powerful co-operatives that made up 95% of the country's toy industry, exporting dolls, building blocks, trains and plastic trucks far and wide across the Soviet bloc and beyond. Little of that is left today. Rows of majestic villas and teddy-bear-shaped statues in the town square are testament to centuries of export might, but only a handful of toymakers remain.
"After the reunification those giant toymakers were no longer sustainable and collapsed very quickly," says Reinhild Schneider, director of the German Toy Museum in Sonneberg. "If you look at the massive scale of production in the past and the renowned toymakers, what we see is a story of decline. You have to accept it. The world is changing."
But in the place of Sonneberg's toymakers are industrial estates almost full to capacity with car parts manufacturers, mechanical engineering plants and plastics specialists.
These are the sorts of small businesses that make up 99% of all German firms, and generate more than half the country's economic output. Sonneberg, and its transformation after the fall of the Berlin wall into a base for such Mittelstand (small and medium-sized) companies, encapsulates the wave of economic success that chancellor Angela Merkel is seeking to ride into the elections in two weeks' time.
These companies, like many across Germany, have been enjoying growing exports as the eurozone finally emerges from recession. At 4.2%, Sonneberg's unemployment rate is among the lowest in the country and has halved in the past five years. Merkel's placards here promise more of the same for workers.
But rivals to her centre-right Christian Democrats seize on growing disquiet in Germany about the value of all those jobs and what many see as rising inequality. Germany has one of the largest proportions of low earners in Europe – a quarter are on less than €9.54 (£8.15) an hour – and for those at the bottom of the pay scale, wages have failed miserably to keep pace with inflation.
Merkel's main challenger, Peer Steinbrück of the Social Democrats, is promising top-ups for families on low incomes, while the leftwing Die Linke party is calling for a national minimum wage and a tax on millionaires under the slogan "It's fun to share".
Sonneberg and its neighbouring towns also offer glimpses of a longer-term problem facing Germany. Europe's growth engine is grappling with the costs of one of the lowest birth rates in the world, and here at its heart the resulting skills shortage is already being felt.
This is the biggest issue for more than 500 local Mittelstand bosses gathering for their Industrie- und Handelskammer (chamber of commerce and industry) gala, a short dash up the recently extended motorway in the town of Suhl. The chamber's latest survey showed a record number of businesses on good form, and there are high spirits at the annual knees-up, which features speeches, dance routines by a troupe draped in locally made LED lights, a prizegiving and a buffet of potato salad, schnitzels and sausages.
But there are nods of recognition when the chamber president for South Thuringia, Dr Peter Traut, highlights a worsening labour crunch. "When I started in this role 10 years ago there were 2,200 young people finishing their exams. Now there are 1,000 fewer. The maths is easy: it has virtually halved."
The drive to attract young trainees is something Karl-Heinz Sladek has been working hard at. He is general manager of HPT Pharma Packaging, based in Sonneberg, and says the tables have been turned on German employers. While their counterparts in eurozone countries such as Spain and Greece are inundated with applicants for every job, German bosses are left wondering where to find young people to meet the rising demand for their car parts, biotech innovations and other exports.
"It is no longer a case of young people applying to us; it's us applying for future trainees," he says.
Companies are wooing school leavers with golden hellos, petrol vouchers, gym memberships and help with childcare. But the numbers are not in the employers' favour. The regional employment agency in Suhl has just reported a record August for trainee demand. There were 869 unfilled training slots but just 336 applicants still looking for a placement.
At Sonneberg's job centre, Dressel has been trying to bring more workers into the area. He recently ferried a busload of potential Sonneberg settlers to a jobs fair from other, less buoyant parts of former East Germany. With his colleagues, he scouts around for companies elsewhere in Germany that are cutting staff or closing and then goes after the workers with brochures expounding the job opportunities and vaunting the quality of life in "toy town", with its vast forests, mountain-bike tracks and ski slopes.
The shrinking pool of school leavers is a worrying trend for a country that has long prided itself on a tradition of apprenticeships and skilled work in a specific Beruf, or trade. That and a push towards innovation have kept Germany competitive in an increasingly global economy, according to Stefanie Spanagel, who runs an engine parts plant in Sonneberg for manufacturer Mann+Hummel.
"There is a pride in skilled crafts," she says. "People don't just say I work at Mann+Hummel, they say I work as a tool maker at Mann+Hummel."
Her plant – the biggest industrial employer in Sonneberg, with 500 staff – keeps 95% of the apprentices it takes on. Others battling in the increasingly cut-throat market for youngsters are not so lucky.
Peter Stahlhut manages production at Glaswerk Ernstthal, on the edge of the town of Lauscha in the nearby Thuringia mountains. Workshops here have been crafting glass since the 16th century and claim to be the birthplace of the Christmas bauble. Lauscha is to Christmas decorations what Sonneberg is to toys.
Stahlhut's factory now produces decorative glass bottles for the spirits industry, more than a third of them for export. The plant has 30 trainees among its 500 staff. But holding on to them is tough.
"In our industry you need experience to do the job well… that means years of learning and doing," says Stahlhut. "But a glass works isn't the sexiest place to work. It's hot. It's noisy. You have to expect to lose 50% of the people you start training."
Economists say the skills shortage will become more acute as the German population continues to fall. The official projections are for drastic ageing: in 2060, every third person will be 65 or older.
Not only are people living longer, but when it comes to having children, Germans lag well behind most other OECD countries. There is anecdotal evidence among women that combining a job and a family is still frowned on. There is also research, including by the OECD, suggests that finding childcare remains a barrier to starting a family for some.
This demographic time bomb has received too little attention in the election campaign, say many economists. "They are not concentrating on structural reform, and that is what you need for women to have more kids," says Laurence Boone, chief European economist at Bank of America Merrill Lynch.
Analysts say that Germany also faces mounting pension and healthcare costs as the population ages and its advantageous economic position starts to crumble away.
"There are big implications for trend growth," says Boone. "The more people who work, the more you grow. And if you have to choose between kids and working, you take women out of the workforce. You need children being born and women working. Not only is Germany's trend growth going to be lower than it was before the crisis five years ago, it's going to be closer to Italian trend growth and below Spanish, UK and French trend growth."
Combining motherhood and work is an area where some western German states could learn a lesson from the former East Germany. Sonneberg's deputy mayor, Dr Heiko Voigt, recalls a time when things were different.
"In the old East Germany we had a very high female participation rate," he says. "We had excellent childcare, and the birth rate was much higher."
Sonneberg now offers care for every child that needs it. A full-time place with meals costs about £120 a month, with discounts for siblings. And toy town's family-friendliness is part of a wider push for business-friendliness in a place that initially suffered badly from the Wendeschock, when East and West Germany were reunited.
"After the wall came down, industry and business collapsed here," says Voigt. "Firms with 3,000 workers went down to 300; some closed altogether. It was akin to what happened in British mining." Business groups and local authorities responded by renewing pre-second-world-war links with neighbouring towns in Bavaria. They also lobbied for new transport links and created industrial estates, including on the "death strip" where the border once stood.
Voigt thinks the town's rebirth as one of the most economically active in Germany could be copied by struggling European neighbours.
"The toy industry is one of many legs that we stand on but not the most important one. You should always have several irons in the fire, be flexible, try unconventional ways of getting results."
CASE STUDIESKrebs Glas Lauscha
In the little German mountain town of Lauscha it is Christmas 365 days a year. Glassblowers have been crafting their wares here for 400 years. They began with simple round windowpanes and over the generations went on to supply bottles to pharmacists, festive baubles to department stores and glass eyes to doctors' clinics.
Lauscha's steep high street is lined with a mix of Christmas shops, lampmakers and surgeries offering prosthetic eyes. But it is for its decorations the town is known in foreign markets.
Krebs Glas Lauscha sends out 6m decorations from here every year and distributes tens of millions more. It sells to Selfridges and Harrods, and also distributes to France, Japan and north America.
But as mass production has swept through the Christmas decorations market, the number of baubles handcrafted in Lauscha on the firm's order books has suffered. In 2011, Krebs Glas Lauscha closed its production plant here and now buys from workshops in the town for those customers who still want to spend big on Christmas.
Rich Russians are buying the handmade and painted baubles, says manager Gerd Ross. "In Russia, it's like it was in America in the 1960s,: you decorate a tree to show who you are."
Demand is also rising in Latvia, Lithuania, Kazakhstan and Mongolia. But Ross, whose father and grandfather made decorations in Lauscha, has seen drastic changes in most places. "The market for quality products has become quite small … People now get Christmas decorations in DIY stores and general stores. It is a shame that things developed that way but we couldn't stop that," he says.
"People's habits have changed too. There was a saying in Lauscha: when things are not working out for people, Christmas tree decorations work. People always decorated their trees, whatever. Today at Christmas … people eat well, they travel, they go to places where snow is guaranteed or perhaps even sunshine, and so the demand for Christmas decorations falls."
Piko
Jens Beyer is under no illusions about the image of his industry. "People don't out themselves as model railway enthusiasts," says the manager at Piko, one of Germany's biggest manufacturers of model trains.
And yet, sales growth has been close to double digits in the last few years for Piko, one of the few toymakers left in Germany's one-time toy capital, Sonneberg. Exports are strong, customers are loyal and its plants in Sonneberg and south China are serving a growing share of the market, he says.
Exports have always been important here. Set just over the Bavarian-Thuringian border in what was East Germany, Piko was made into a major toymaker under communism and became known to model buffs around the world as the go-to supplier for Soviet townscapes and trains. Today it still enjoys a strong following in the US, where it has a distribution centre, as well as rising demand in Russia.
But model trains are a labour-intensive business and pressure on margins is high. Against a backdrop of stiff competition and stagnating disposable incomes for many of its customers, Piko opened its Chinese plant five years ago and the 300 workers there now easily outnumber the 170 assembling trains and running the machines in Sonneberg.
The German toy town is still the workshop for 150 different PIKO products, which range from miniature cargo wagons to larger scale outdoor train sets.
It is a market that thrives on new releases.
"We have to invest in new technology but especially in new products," says Beyer.
PIKO pays €150,000 for a set of moulds for a single locomotive. Where possible it will use that mould for a number of variations by changing the plastic colour or logos to represent the variety of real-life rail operators. "Rail privatisations have been good for us," says Beyer.
Like most other manufacturers, Piko's bosses worry about skilled labour shortages and there is pressure too from rising energy costs – a constant point of tension between German business and the state since the government vowed to phase out nuclear power after the 2011 Fukushima disaster.
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