FRANKFURT, Feb. 27 - Ten years ago, in the economic boom after German reunification, nothing seemed capable of stopping this country.

Now, nothing seems capable of starting it up. Like the United States, Germany is struggling to climb out of recession. But unlike the United States, Germany has become something of a laggard with problems that started long before the current slowdown and that seem likely to continue long afterward.

Once Europe's industrial locomotive - home to Mercedes and Porsche (news/quote), Siemens and Bosch - Germany has had either the slowest growth or second-slowest growth in Europe for the last six years.

"It doesn't matter whether we are in a boom or a recession, we are always the last in economic growth," said Hans-Werner Sinn, director of the Ifo Institute for Economic Research in Munich. "I do not think the trend will change soon."

Today, the German government confirmed that the economy shrank for the last two quarters - the worst performance of any European country and a common definition of recession in the United States. Many economists say growth will resume later this year, but there is widespread doubt it will soon reach respectable levels. The country's central bank said it thinks that Germany's long-term "potential" growth rate has slowed to less than 2 percent a year - slower than the United States and other European Union nations.

Germany's long-term pattern resembles a much milder version of the stagnation Japan is going through - economic anemia at home, unhealthy dependence on exports, a paralyzing culture of consensus decision-making and an inability to carry out much-needed financial and economic changes.

This is bad news for other countries, too. Germany's economy is the world's third largest, after those of the United States and Japan, and accounts for one-third of the euro zone's output. When Germany slumps, it drags the rest of Europe with it. And when the United States is in recession, Germany's weakness makes it impossible for Europe to step in as the engine of world recovery.

The conventional wisdom is that Germany's problems merely stem from the global downturn. Exports make up a third of the economy, so Germany is sensitive to slumps elsewhere.

The real problems, though, seem to be at home. Even last year, a terrible year for global demand, German exports were slightly higher than those the year before.

Carmakers like BMW, Mercedes and Volkswagen (news/quote) all reported big increases in foreign sales, particularly in the United States. The shoe manufacturer Puma said its sales in the United States rose 28 percent.

By contrast, the mood at home is anxious, pessimistic and risk-wary.

"Everyone is looking for security, security, security," said Manfred Wittenstein, owner of Wittenstein G.m.b.H., which makes motors for automated machinery.

German job-protection rules remain rigid, discouraging companies from hiring full-time employees. Many stores close at 2 p.m. on Saturday, and most do not open on Sunday. Ordinary discounts are illegal, the notion being that they might confuse consumers.

Adjusted for inflation, retail sales have been stagnant in Germany for six years, and shop owners say that last Christmas season was the worst in 10 years. Car sales dropped 5 percent last year and were stagnant in 2000, when the economy was stronger.

Investment in factories and equipment has lagged behind the rest of Europe and far behind that in the United States. Manufacturers, fearful about any trouble in export markets, canceled plans for new investment last year when the United States stopped growing.

"Germany reacts very sensitively to swings in the world economy," said Hermann Remsperger, chief economist for the central bank. "Business sentiment is much more closely tied than before to changes in U.S. sentiment."

Such caution would have been hard to foresee a decade ago. Driven by boundless optimism and tax subsidies, western Germans pumped hundreds of billions of dollars into reconstruction of the formerly Communist East. Consumers in the eastern region - who had been allowed to convert their nearly worthless East German marks into western marks - streamed westward to buy Volkswagens, television sets, kitchen appliances and clothing.

"It was unbelievable, like a wildfire," recalled Günter Sander, owner of Horstmann & Sander, a retailer of luxury leather goods in Hanover. But after two delirious years, the party ended and not started back up again.

Today, Mr. Sander's sales have yet to reach their former peak. Brinkmann's, a chain of appliance superstores, went bankrupt two months ago. Unemployment in Hanover is 11 percent and rising. For western Germany as a whole, it is running about 8 percent and for eastern Germany, above 15 percent.

Germany's problems have meant acute embarrassment for Chancellor Gerhard Schröder, who campaigned for office on a reduction in unemployment and is up for re-election this September.

Not only is joblessness climbing, but government finances are coming unglued. Last month, the European Union nearly issued a warning that Germany's ballooning budget deficit threatened to violate fiscal rules that Germany had itself insisted upon.

Germany avoided a reprimand, but only after Mr. Schröder lobbied other European leaders and not before he endured scathing criticism for trying to wriggle out of the European rules.

"I ask myself all the time, how can it be that exports do so well and consumers spend so little of their money at home?" said Mr. Sander, whose store sells shoes, handbags and luggage from the likes of Prada, Tumi and DKNY.

"The answer," he said, "is that every consumer is like a small businessman. A businessman only invests when he sees something positive in the future, and consumes are the same way. Right now, the consumer is saying things don't look that good."

The gloominess has been evident for years. Even when the economy accelerated in 2000, unemployment never fell below 8.6 percent and has now climbed back to 9.6 percent.

Germany remains a manufacturing country, particularly of industrial equipment and components. The problem is that its export exuberance masks an internal anemia, which means that Germany has become even more dependent on exports than before.

Mr. Remsperger, the central bank economist, said that since 1995, the share of the economy attributed to exports had climbed to 35 percent from 24.5 percent. So now, business confidence, investment and the economy as a whole are more vulnerable to swings in the global economy.

But why?

Economists say some of the problems are not of Germany's making. The adoption of the euro as a common currency created virtually identical interest rates in all 12 member countries. Germany, which has consistently had low inflation and low interest rates, lost an important competitive advantage.

The collapse of Communism and the reunification of Germany created other burdens. Companies shifted manufacturing to Poland and the Czech Republic, where wages can run one-fifth of those here. Eastern Germany became a drain on the rest of the country, swelling its debt burden.

More enduring problems have to do with economic reform. Taxes and employer-paid contributions to social security, including health and retirement benefits, account for about half of a worker's gross wages. Job protection rules have been relaxed, but it is still expensive to lay off workers. Germany's postwar consensus culture, which pervades labor relations and corporate decision- making, has made change tortuous.

An unemployed person with a family of four is entitled to receive, indefinitely, an income of 74 percent of the average wage. That works out to about $1,500 a month. Any company with more than three employees can be required to form a "works council," a group of workers who must be consulted on issues including hiring and firing. Larger companies must follow rules laid down in a 500-page book governing employee issues.

"The sum of these labor laws results in a very strict environment," said Mr. Sinn of the Ifo Institute. Because of wages and work rules, he said, German companies have overinvested in automation and hired the minimum number of skilled workers at high wages.

"That only makes sense when you are not trying to eliminate jobs," he said. "German firms cut back on their labor force by not employing people. It sounds strange, but Germany needs to create a new sector of low-wage, low-skilled jobs."

With national elections in September, significant changes are unlikely this year. Some industry experts, German and foreign, think such changes are unlikely anytime soon.

"In the German psyche, the state is the protector," said Fred Irwin, president of the American Chamber of Commerce in Germany, who has worked here for nearly 30 years. "On the surface, people talk about reforms and lower taxes. But the bottom line is that people don't really want reforms. Regardless of whether it's the Christian Democrats or the Social Democrats in power, there is a consensus around the way things are."