Germany: Special Report

The black clouds of Germany's recession have cast a dark shadow over Europe. Germany is the continent's largest economy and accounts for nearly a third of GDP in the euro area. For as long as Germany remains in its slump, most of Europe will be dragged down with it.

But there is light at the end of the tunnel. The elections of 18 September promise to bring a much-needed shake-up. Chancellor Gerhard Schroder's last-ditch electioneering seems more like a death rattle than fighting talk, and it is unlikely he'll get another term.

Germany's big corporations have finally succumbed to intense pressure and have slashed their cost bases. The trade unions have become more flexible, and there is a new confidence in the air in the business world. It is only consumers who remain too wary of losing their jobs to kickstart high-street spending.

These rays of hope are starting to lift spirits in Germany's beleaguered ad industry (this page). Yes, years of savage cost-cutting, job losses, nerve-shredding make-or-break pitches and margin strangulation by penny-watching clients have left its agencies lean and mean (page 37). But although its market will shrink again this year, Germany's adland is bored of being downbeat.

Germany is hosting the 2006 World Cup, and the certainty of advertising from sponsors and opportunistic brands will be a welcome relief. Once the economy starts to move again, Germany's biggest advertisers will spur the rest of the market into action. And, as is often the case in a recession, German agencies are producing some of the best work of their lives (page 33) and impressing awards juries that wouldn't usually give a German entry the time of day. Slowly but surely, true to its character, there are real signs that Europe's largest power is finding its feet again.