WHEN Chancellor Helmut Kohl ponders Germany's relations with its European neighbours, he is often reminded of his own schooldays.

"When the best in the class got spoor marks, the others rejoiced," he recalls.

For 40 years Germany had the model European economy, boasting a formidably stable currency, luxurious living standards and a generous, comprehensive social welfare system.

The Bundesbank ensured inflation remained firmly under control and a consensus approach to industrial relations kept wages high while preventing strikes.

But when the Taoiseach, Mr Bruton, visits Bonn today for talks with Dr Kohl, he will find a country gripped by economic anxiety and social division. Unemployment stands at a post war record of more than four million, economic growth has slowed to a crawl, and a wave of public sector strikes threatens to paralyse the major cities throughout the summer.

The most galling aspect of all for the passionately pro European chancellor is that, on present projections, Germany will not qualify for membership of the single European currency in 1999.

Only a year ago the German Finance Minister, Mr Theo Waigel, was warning Ireland that its national debt was too high for full EMU membership. But now Ireland looks certain to qualify and Germany's own problems threaten to sink the entire project.

Dr Kohl and Mr Waigel are caught in a classic economic conflict, obliged to cut public spending by a massive £20 billion but fearful of further undermining consumer confidence at a time of mass unemployment and growing economic insecurity.

The strain has begun to show on Germany's social contract, with trade unions complaining that the proposed cuts will hit the weakest in society while big business threatens to abandon the social consensus altogether.

Many of Germany's biggest firms are already abandoning Germany as a base for expansion, preferring to site new operations abroad. Ireland has been a major beneficiary of this trend, with companies such as the media giant Bertelsmann creating hundreds of jobs in Dublin this year alone.

German businessmen who once complained about the lax working practices of their European neighbours now marvel at the seal and flexibility of Irish workers in comparison with their own.

German officials charged with collecting data on social welfare in other European countries have concluded that Bonn could solve all its financial problems at a stroke by adopting Ireland's comparatively meagre social security system.

And Dr Kohl is convinced that, if Germany is to tackle unemployment effectively, German workers - must sacrifice some of the privileges they have won during the past 25 years and become as adaptable as, for example, the Irish.

Unemployment will be at the top of the agenda at today's talks, as Kohl and Mr Bruton attempt to work out an agreed approach to the EU summit in Florence later this month, and to the major issues of the Irish presidency, starting next month.

There is no dispute about the importance of unemployment in Europe. But a series of summits and conferences on the issue has thus far failed to produce any concrete measures to counteract it.

Bonn is cautious in its expectations of the Irish presidency, as little EU business is conducted during the month of August, or after the middle of December.

But Ireland's last presidency, in 1990, is recalled favourably by German officials, some of whom believe small countries tend to concentrate their limited resources on the most important issues, thus avoiding time wasting distractions.

Dr Kohl's cabinet is not commenting in public on Britain's policy of obstructing EU business. But it is no secret that Bonn is eager for a quick resolution to the BSE issue.

Irish officials hope a solution will be found before the end of the Italian presidency. If it is not, Germany will hope that Dublin can use its special relationship with London to help construct a compromise.

The Tanaiste, Mr Spring, covered much of today's agenda during a three hour meeting with the German Foreign Minister, Mr Klaus Kinkel, in Berlin last month.

The two men are believed to be friendly and there is no sign that Irish - disappointment with Germany's inaction during the currency crisis of 1992 has done lasting damage to relations between Bonn and Dublin.

German politicians regard the Irish as "good Europeans" and, unlike larger EU members, Ireland displays little resentment of Germany's dominant role within the Union. The sole point of major disagreement is what one former German ambassador to Dublin described as "this fetish about neutrality".

Although Bonn understands the background to Ireland's refusal to join a military alliance, there is little sympathy for Dublin's position. Some senior members of Dr Kohl's government have stated publicly that all EU members must eventually become members of both the WEU and Nato.

For many German politicians, Ireland's neutrality is less acceptable than that of some other EU members, in view of Ireland's huge benefits from membership.

Dr Kohl is expected to ask the Taoiseach today what steps the Government is taking towards greater participation in a common European security and defence policy.

German officials insist the chancellor will not attempt to pressurise Mr Bruton into any action. But the Taoiseach will be left in no doubt that Dr Kohl regards neutrality as the single remaining obstacle to Irish membership of any future hard core of EU states.

Dr Kohl is due to visit Ireland at the beginning of October, his first state visit to the country since he took office in 1983. On his return he will open this year's Frankfurt Book Fair, which focuses on Ireland and will form the centre of a three month Irish festival in Germany.

As the EU presidency catapults Ireland to the centre of the German political consciousness, there could be no more opportune moment to cement relations between one of Europe's most dynamic economic upstarts and its faltering giant.