Mark Hopkins, Jr.
Professor Wright
Macroeconomics
6 December 2010
The Resurrection of Germany’s Economy
When one thinks of Germany, images of the Oktoberfest, Nazism, and the Berlin Wall all come to mind. However, what should be foremost in the minds of the masses is that this nation has risen phoenix-like from post-World War II destruction to become the “highest-ranked eurozone country and fifth most economically competitive country in the world” (Deutsche Welle 1). Through hard work and Socialist reform laws, the German economy has manage to not only survive, but prosper in the current world recession. A short look at the post-World War history of this nation shows a remarkable drive to improve exponentially and an almost unnatural will that spawns one of the world’s strongest economies.
Following the defeat of the Nazi Party in World War II, German was divided in half (actually into four quarters but three of four united to create Western Germany). Between 1948 and 1960, a period of extreme economic growth occurred. In 1948, reforms directed at the monetary, economic, and institutions were passed. These led to a nearly year and a half of relative stability. In late 1959 and early 1950, industrial production skyrocketed, rising a staggering 36%. Throughout this period, “the average annual growth rate was 15% per year” (Watkins 1). Though this did lead to an increase in jobs, the problem slowing rebuilding was lack of capital. The answers to investors’ fears were simple: tax incentives to save as well as tax breaks for capital creation. This led to an increase of 84.4 % per year for 1948-1950 in foreign trade and an increase of 16%, per year for most of the 50s, according to Thayer Watkins.
In 1989, Germany began reunification. With this came the serious, and damaging, tasks of rebuilding (some would say ‘building’) East Germany. The government of pre-reunification, known as the German Democratic Republic (GDR), was not a democracy. Had it been, the West German people would not have had to spend so much to merge the nations. In an attempt to help Eastern Germany, the Federal German Republic (FGR) established subsidies to help rebuild the east. This utterly failed and is a continued drain, currently about $3 trillion total. Even today, the unemployment rates in eastern Germany can exceed 20%. Though Germany is an ever growing country, the costs for East German labor are much higher while the productivity is significantly lower. With such statistics, it is easy to see why many companies refused, until very recently, to build factories, and other industrial sites, in the eastern parts.
In recent years, here are some economic statistics for Germany. In 2009, Germany’s Real GDP (Gross Domestic Product, or the amount of goods and services produced by a nation in the year) was $3.339 trillion in 2009. As a comparison, the US GDP for 2009 was 14.12 trillion in 2009. By only the numbers, the US is much better off. To show how significant this is, Germany is roughly the size of Montana but still exports more (1.145 trillion) than the US (1.069 trillion). Germany has the largest GDP, population, and economy in the EU, according to www.tatsachen-ueber-deutschland.de
. In 2011, German is predicted to hit the “key one-trillion-euro mark” (GIC 1) for exports. With this, and the expected 16% growth, according to the Association of German Exporters and Wholesalers (BGA), there is little doubt that the US will lose out to China (the current leader in exports) as Germany’s main non-EU sales market. Alongside these increases, the GDP is projected to rise by 3.4% as well as the economy expanding by 3.5% this year. Germany is not the only country benefitting from this success. Other European nations are also benefitting from the market demands created by the German economy. As mentioned previously, eastern Germany retains higher unemployment levels as compared to the rest of Germany. The unemployment for all of Germany is projected as dropping to 2.9 million in 2011, according to a press-release by Deutsche Welle. To continue the trend of growth in Germany’s economy, their share of the world market is expected to increase from 9% to 9.5% in 2011.
Not everything in Germany’s economy is going good though. With such a dependency on the global economy, the domestic demand is in grave need. Over half, 54.2% roughly, of all German foreign trade is exporting. While this is not necessarily a bad thing, it leads to an economy that is dependent on the global market. Though the foreign trade market is fine, the domestic market needs to be strengthened. In recent years, inflation has been as high as 2.6% in 2008, while the European Union (EU) saw inflation of 1.8% in 2008. The fact that the strongest economy in Europe had the most inflation leads to further prove how desperate the domestic market is for reform/rebirth. Also adding to the setbacks, public debt attests to roughly 73% of GDP. Compared to 130 other nations, Germany ranked 20th. Behind them, the US ranked 41. Public debts are “the cumulative total of all government borrowing minus repayments that are denominated in a country’s currency” (cia.gov 1). While public debt is ranked 20th, the external debt (the total public and private debt owed to nonresidents) is ranked 3rd at $5.208 trillion. In the year to come, imports are expected to raise a minimum of 17%, bringing the total to roughly 789 billion euro. While still much lower than the export rates, these increases further the ideal that the domestic market is in need of some form of additional aid.
There have been, in 2008 and 2009, stimulus plans enacted by the German government to help combat the impact of the global recession. The governing coalition enacted a two-year €50 billion stimulus plan in 2009 that was the largest since World War II. Alongside this, there have been tax cuts and modifications of brackets. German tax brackets do not shift for inflation currently. Another part of this stimulus plan is €2,500 being paid to anyone who buys a new car and “deregisters a vehicle that is older than nine years” (Spiegel 1). An additional bonus to parents is €100 per child as well as child benefit payments being raised for unemployment. Some say that this package is too small and would not be nearly enough. The Social Democrats (a center-left party) stated, “Families with two children would have an extra €400 to €500 in their pockets per year…” (Spiegel 1) in rebuttal to doubters of the policies. Currently, these plans are working well for the German economy. Americans should be questioning why the Obama stimulus plans are not working and the German ones are. The answer is simple enough. Germany is planning for the future while the Obama plans are aimed at the present with little consideration to the repercussions of being so severely indebted to the world. The American policies borrowed much more and, for a short time, have slowed the ‘floods’ of recession. However, while the German plans borrowed less (still a sizable amount), their plan is to weather the ‘storm’, not deny that it exists. Many people continue to criticize Germany’s policies and reforms but these same people all bring one fact to light: Socialism vs. Capitalism. It is the bases of a Capitalistic society to spend more while Socialist societies try to protect the well being of the people through any means needed.
Throughout researching this, one fact has struck true time and time again: I’m glad that I left Germany. If, as a 21 year old college student, I were still residing in Bamberg, life would be very controlled. The economic future of my finances would be stabile and my job skills as a cook would be in high demand. This is not what any young adult truly wants. They want danger, excitement, that little hint of uncertainty for if there will be food or shelter in a year. America has it great in terms of our economic situation… Don’t we? Or are we merely pawns to a group of leeches sucking every penny from those of us with the intelligence but not the power to enact better policies and laws? Should the US take a page, or twenty, from Germany’s book and move more towards a Socialist society? This writer, ex-resident of der Bundesrepublik Deutschland (or the Federal Republic of Germany), and student of political history hopes that the information on this page is both biased and informative. For without a violent conflagration, can a phoenix arise from the ashes?
Works Cited
"Business News: Germany the Most Competitive Eurozone Country." Germany News, Germany Economy, Germany Politics: German Information Centre. 10 Sept. 2010. Web. 02 Dec. 2010. <http://www.german-info.com/business_shownews.php?pos=Germany_the_most_competitive_Eurozone_country&pid=427
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"CIA - The World Factbook." Welcome to the CIA Web Site — Central Intelligence Agency. 2009. Web. 4 Dec. 2010. <https://www.cia.gov/library/publications/the-world-factbook/geos/gm.html
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"Facts about Germany: Economy." Facts about Germany: Home. Web. 4 Dec. 2010. <http://www.tatsachen-ueber-deutschland.de/en/inhaltsseiten-home/zahlen-fakten/wirtschaft.html
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"Germany." U.S. Department of State. 10 Nov. 2010. Web. 5 Dec. 2010. <http://www.state.gov/r/pa/ei/bgn/3997.htm#econ
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"News : German Exports Race Ahead at the Fastest pace in a Decade." Germany News, Germany Economy, Germany Politics: German Information Centre. 20 Oct. 2010. Web. 1 Dec. 2010. <http://www.german-info.com/press_shownews.php?pid=3109
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Watkins, Thayer. "ECONOMIC HISTORY AND ECONOMY OF GERMANY." San José State University - Powering Silicon Valley. Web. 07 Dec. 2010. <http://www.sjsu.edu/faculty/watkins/german1.htm
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