The Eurasia Center 1800 Connecticut Avenue nw washington, dc 20009



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The Eurasia Center

1800 Connecticut Avenue NW

Washington, DC 20009

www.eurasiacenter.org

Email: Eurasiacenter1@cs.com






Germany: Economic Overview
Role within the European Union:

Germany was a founding state of the European Economic Community (EEC), the predecessor to the modern day EU. The EEC was founded in 1957 with the primary goal of economic integration in Europe, culminating in the Union’s introduction of the euro as the primary currency on January 1, 1999—efforts Germany had principally led.1 Today, Germany has the largest population of any member state in the EU, as well as the most powerful economy.2 Chancellor Merkel is scheduled to hold the position of the EU Presidency in the first half of 2007, a position that may give Germany an opportunity to reform some of the more inefficient institutions within the EU.3


Positive Economic Indicators:

  • Germany’s estimated GDP at the end of 2005 was $2.73 trillion, and the GDP per capita was $30,400.4

  • The German economy has been steadily growing. Based on EUI economic statistics, real GDP growth in Germany has been increasing since 2003 after a -.2% decrease in 2002.5

  • Inflation levels have remained between 1-2% over the last five years. However, these levels are expected to boost slightly in 2006 due to further increases in oil prices.6

  • Small and medium-sized enterprises (SMEs) play a vital role in the German economy. In 1999, the nation had roughly 3.2 million SMEs that employed approximately 20 million German citizens (about 25% of the population), a number that has surely increased over the years.7


Economic Structure:

  • GDP composition by sector: 0.9% agriculture, 29.6% industry, 69.5% services.8

  • Unemployment rate in 2005 was an estimated 11.7%.9

  • The current account surplus is $115.5 billion, as exports have outweighed imports.10

  • Major export commodities include: machinery, vehicles, chemicals, metals and manufactures, foodstuffs, textiles.11

  • Germany boasts the largest economy in Europe and is the world’s biggest exporter. In real terms, Germany wields the third largest economy in the world (behind the United States and Japan) and the fifth in terms of purchasing power parity.12

  • Germany does not limit itself to trade within the EU. Germany’s closest trading partners include neighboring countries. While France and the Netherlands are major partners, Germany also trades with other economically powerful countries like the United States and China .13


Political Considerations:

  • At present, a “grand coalition” exists in the German government between the Christian Democratic Union (CDU), the chancellor’s political party, and the Social Democratic Party (SPD). This coalition holds the majority in German parliament, but given the inherent differences between the parties, the reform process has been slow and difficult. One major focus of the coalition is fiscal consolidation, with the overarching goal of lowering the national debt below 3% of GDP to meet EU standards once again.14

  • Germany has a bicameral Parliament that consists of two chambers: the Bundestag (Federal Assembly) with 613 directly elected seats, and the Bundesrat (Federal Council), in which state governments are represented by 69 votes. Elections for the Bundestag are held every four years.15

  • The German President, Horst Koehler, was elected in 2004 by the Bundestag and representatives from state parliaments. The German head of government, Chancellor Angela Merkel, was elected in 2005 by Bundestag majority. The next elections for both executive positions will take place in 2009.16

  • With the new coalition now controlling German legislative affairs, Chancellor Merkel and Parliament have addressed the need to reform structural problems with tax policy, social security, and the unemployment rate. While no new policies have yet gone into effect, there are high hopes that a coalition government will rapidly achieve these goals within the next few years.17

  • At the end of the year 2000, German corporate income tax was between 30-40%, and personal income tax was between 16-45% depending on the amount of income.18


Attractions:

  • Foreign Investment: Experts from the Economist Intelligence Unit and Deloitte have reported that the German government welcomes foreign investors as an opportunity to create new jobs in the country. Foreign investors receive the same treatment as domestic investors and have no additional restrictions or barriers in conducting business in Germany.19


  • Population and labour participation
    (in millions)


    Specification

    2003 1

    2004 1

    2005 1

       

    Population

    82.520

    82.501

    82.464

    Economically active population

    42.334

    42.723

    42.619

    Unemployed persons

    3.703

    3.931

    3.893

    Employed persons

    38.631

    38.792

    38.726

    Employees

      34.558

      34.570

      34.370

    Self-employed

    4.073

    4.222

    4.356

    1 Preliminary result.

    Source: Federal Statistics Office of Germany
    Advanced Technology & Industry: Germany is currently one of the world’s largest and most technologically advanced producers of metals and valuable resources, such as iron, steel, coal, cement, chemicals, and textiles. The estimated industrial growth rate for the nation in 2005 was 2.9%.20

  • Close Ties to the United States: Since the end of World War II and the rebuilding of Germany through the Marshall Plan, the United States and Germany have been close allies. German- US trade is also stronger than ever: about 9% of all German exports go to the United States, a stronger number for a country that trades with many other nations throughout the world.21


Troubled Spots:

  • Unemployment: Germany has strict regulations on firing employees and setting wages to a national basis, making it hard to combat the problem of unemployment. Recent data from the German labor bureau also shows that while short-term unemployment is slowly declining, the problem of long-term unemployment with 11% of the nation’s citizens remains to be solved.22

  • Continued Recovery from the Cold War: Though Germany has one of the world’s largest economies, the process of integrating the former eastern German economy with the west continues to be long, expensive, and hinders economic growth. The estimated amount of money transferred annually from west to East Germany is $70 billion.23

  • Racial and Gender Inequality: Germany has had problems in the past with racial discrimination and women’s rights. On April 29, 2005, the European Court of Justice ruled that Germany had violated EU law by failing to fully implement the ‘Racial Equality Directive’ for all member states. In addition, women in Germany traditionally held the role of mother and wife. While that stereotype is slowly fading, women still only hold 9.2% of upper and middle management jobs in Germany today.24


Acknowledgements:
Research and Data Development Provided by: Jessica Jerrell, Research Assistant

Under the Supervision and Coordination of: Dr. Samuel Lee Hancock, CM, Executive Director



1 CIA World Factbook. https://www.cia.gov/cia/publications/factbook/geos/gm.html. 8 August 2006.

2 Wikipedia. “Economy of Germany.” http://en.wikipedia.org/wiki/Germany#Economy. 8 August 2006.

3 Economist Intelligence Unit: Country Report for Germany. http://www.eiu.com.proxyau.wrlc.org/index.asp?layout=displayIssueTOC&toc2=no&publication_id=1510000951&issue_id=200719205. 8 August 2005.

4 CIA World Factbook.

5 Economist Intelligence Unit: Country Report for Germany.

6 Ibid.

7 http://www.ifm-bonn.org/ergebnis/sme-in-germany.pdf. 16 August 2006.

8 Economist Intelligence Unit: Country Report for Germany.

9 Ibid.

10 CIA World Factbook.

11 Ibid.

12 Wikipedia. “Economy of Germany.”

13 CIA World Factbook.

14 Economist Intelligence Unit: Country Report for Germany.

15 Wikipedia. “Economy of Germany.”

16 Ibid.

17 U.S. Department of State. “Background Note: Germany”. http://www.state.gov/r/pa/ei/bgn/3997.htm. 10 August 2006.

18 http://germany.info/relaunch/business/taxes/german_tax_rates.html. 16 August 2006.

19 The Heritage Foundation. “Index of Economic Freedom 2006- Germany.” http://www.heritage.org/research/features/index/country.cfm?id=Germany. 9 August 2006.

20 CIA World Factbook.

21 Wikipedia. “Politics of Germany.”

22 CIA World Factbook.

23 CIA World Factbook.

24 Wikipedia. “Politics of Germany.”


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