Germany Destination News

ECONOMIC DEVELOPMENT

Germany describes its economy as a “social market economy.”

Outside of transportation, communications, and certain utilities,

the government has remained on the sidelines of entrepreneurship.

Beginning in 1998, and in line with EU regulations, the German

government began deregulating these fi elds as well. It has,

nevertheless, upheld its role as social arbiter and economic adviser.

Overall economic priorities are set by the federal and Land

governments pursuant to the 1967 Stability and Growth Act,

which demands stability of prices, a high level of employment,

steady growth, and equilibrium in foreign trade. In addition to

the state, the independent German Federal Bank (Bundesbank),

trade unions, and employers’ associations bear responsibility for

the nation’s economic health. With the advent of the euro in 1999,

much of the Federal Bank’s authority in monetary matters was

transferred to the European Central Bank (ECB). In the international

arena, Germany has acted as a leader of European economic

integration.

Government price and currency policies have been stable and

eff ective. Less successful have been wage-price policies, which

have been unable to control a continued upward movement. Infl

ationary pressures have increased and combined with a general

leveling off in productivity and growth. Attempts to neutralize

competition by agreements between competitors and mergers are

controlled by the Law Against Restraints of Competition (Cartel

Act), passed in 1957 and strengthened since then. Th e law is administered

by the Federal Cartel Offi ce, located in Bonn.

Unemployment remained at an average 9% in the early 2000s; it

was twice as high in eastern Germany as in western Germany. As

of the fi rst quarter of 2005, the unemployment rate stood at 12.4%.

Although much eff ort has been expended to integrate the former

East German economy with the West’s (infrastructure has improved

drastically and a market economy has been introduced),

progress in causing the two economies to converge slowed in the

late 1990s and early 2000s. Annual transfers from West to East

amounted to approximately $70 billion in 2005. Germany had the

weakest GDP growth in the EU from 1994–2003, when Germany’s

economy was moribund.

Th e aging population, combined with high unemployment, has

pushed social security outlays to a level exceeding contributions

from workers. Corporate restructuring and growing capital markets

are setting the foundations allowing Germany to thrive globally

and to lead the process of European economic integration,

particularly if labor-market rigidities are addressed. However,

in the short run, rising expenditures and lowered revenues have

raised the budget defi cit above the EU’s 3% debt limit.

This entry was posted on Wednesday, June 13th, 2007 at 2:07 pm and is filed under About Germany. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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ECONOMIC DEVELOPMENT

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