Lessons in Tyneside's run from ale to champagne

Newcastle's tireless partygoers shun the city's traditional pubs these days and flock instead to chic wine bars on Saturday nights to down champagne and expensive cocktails.

The bars, with an almost empty job centre, symbolise the revival of the city of 260,000 in England's north-east, which a decade ago epitomised Britain's industrial decline.

Labour Prime Minister Tony Blair thinks the formula that revitalised Newcastle could benefit much of Europe, including Germany where joblessness and slow growth could cost his German counterpart his job in Sunday's election.

Take Gelsenkirchen, Newcastle's twin town in Germany's northwestern Ruhr area, the former industrial heartland of Europe's top economy.

With a jobless rate stuck around 20 per cent it bears some resemblance to Newcastle 20 years ago, when unemployment soared to about 20 per cent in the late 1980s as competition and labour disputes killed off coalmining and shipping.

"I've seen wonders. It's gone from bust to boom," said Tim James, who came to Newcastle 25 years ago when ships steamed up the river Tyne and dockers hung around the quay.

Since then local initiative, free-market thinking and Government and European Union support have transformed Newcastle.

Blair says the European Union must deregulate and reform to compete with China and India, ideas he will press at a special EU summit in London next month.

After decades of Britons looking enviously at Germany's post World War II "economic miracle", could Britain with its higher growth rates now be a model for Germany?

In Gelsenkirchen, the mood is glum ahead of the poll.

"There just aren't enough jobs around and people are fed up with all the broken promises," said Katrin Austermann, 31, a local teacher.

"It's gone downhill ever since the mines closed. The Government doesn't seem to have any answer."

More than 40,000 coal and steel jobs were lost with the closing of 50 pits between 1991 and 1997. The population of the city has fallen from 400,000 in the 1960s to 270,000.

Despite efforts to develop new business and build infrastructure, Gelsenkirchen reflects Germany's wider economic problems.

Social Democrat Chancellor Gerhard Schroeder has tried to tackle unemployment by cutting benefits but economists say labour laws, which favour workers' rights and the generous healthcare and pension systems need an overhaul.

It is unclear how radical conservative Angela Merkel will be if she becomes chancellor, but beyond reforms, some say Germany needs first to address its sense of crisis.

A survey last week showed German anxiety to be at a record high with many agonising over job security, price rises and social reforms.

"People are afraid they will lose out and that's a problem because change demands positive thinking," said Professor Manfred Schmidt of Ruprecht-Karls University in Heidelberg, a theory supported by the Newcastle experience.

"People put the past behind them and started looking outwards," said Tim Cosh, head of the city council's economic development.

After traditional industry declined, the council sought private partners and spruced up the city centre. Shops and bars opened and new architecture was commissioned.

"This was not a Thatcherite solution but a pragmatic attempt to adapt to rapidly changing market conditions," said Cosh.

Entrepreneurs say flexible labour laws, airport and airspace deregulation and the pressure put on universities to generate income helped.

Newcastle lured firms with subsidies and by stressing its competitive strengths, such as average weekly earnings 15 per cent lower than the British average. Now, mortgage bank Northern Rock, software company Sage Group and consumer goods maker Proctor & Gamble are among the area's biggest employers.

But the news is not all good. Locals say Newcastle lacks entrepreneurs and small businesses.

Critics argue many of the jobs are low-skilled and, therefore, vulnerable and the public sector still makes up about a third of the area's economy.

Union bosses say wages are too low and Britain and Germany trail the average of Group of Seven rich nations.

In Gelsenkirchen, some also see downsides to the British model. Germans live longer and work fewer hours than Britons. Their Government also spends about 20 per cent more on health.

Gelsenkirchen

The city's jobless rate is stuck at 20 per cent.

That's well above the national level of 9.3 per cent.

More than 40,000 coal and steel jobs were lost with the closing of 50 pits between 1991 and 1997.

The population has fallen from 400,000 in the 1960s to 270,000.

Newcastle

The city has gone from bust to boom.

Unemployment soared to 20 per cent in the late 1980s.

This was the result of global competition and labour disputes killing off coalmining and shipping.

Local initiative, free-market thinking and government support have transformed Newcastle.

- REUTERS