Germany Destination News

Th e 1967 Law for the Promotion of Economic Stability and 

Growth requires the federal and state governments to orient their 

budgets to the main economic policy objectives of price stability, 

high employment, balanced foreign trade, and steady commensurate 

growth. Th e Financial Planning Council, formed in 1968, coordinates 

the federal government, states, municipalities, and the 

Bundesbank in setting public budgets. Income, corporate turnover, 

mineral oil, and trade taxes account for more than 80% of 

all tax revenue, with the federal government controlling just under 

half of it. Since the 1960s, social insurance provisions have accounted 

for the largest share of federal expenditures. Germany’s 

reunifi cation in 1990 raised special problems with regard to economic 

and fi nancial assimilation. Th e Unifi cation Treaty provided 

that the new states should be incorporated in the fi nancial system 

established by the Basic Law as much as possible from the onset. 

Th erefore, since 1991, the new states have basically been subject to 

the same regulations with regard to budgetary management and 

tax distribution as the western states. A “German Unity Fund” was 

initiated to provide fi nancial support for the new states (and their 

municipalities); it is jointly fi nanced by the western states, with 

most of the money being raised in the capital market. 

Th e US Central Intelligence Agency (CIA) estimated that in 

2005 Germany’s central government took in revenues of approximately 

$1.2 trillion and had expenditures of $1.3 trillion. Revenues 

minus expenditures totaled approximately -$113 billion. 

Public debt in 2005 amounted to 68.1% of GDP. Total external 

debt was $3.626 trillion. 

Th e International Monetary Fund (IMF) reported that in 2003, 

the most recent year for which it had data, central government 

revenues were €653.46 billion and expenditures were €698.61 

billion. Th e value of revenues was us$738 million and expenditures 

us$788 million, based on a market exchange rate for 2003 

of us$1 = €.8860 as reported by the IMF. Government outlays by 

function were as follows: general public services, 13.7%; defense, 

3.6%; public order and safety, 0.4%; economic aff airs, 6.7%; environmental 

protection, 0.1%; housing and community amenities, 

0.9%; health, 19.3%; recreation, culture, and religion, 0.1%; education, 

0.4%; and social protection, 54.8%. 

In 2003, the value of direct premiums written totaled $170.811 

billion, of which nonlife premiums accounted for $94.073 billion. 

Germany’s top nonlife insurer in that same year was Allianz 

Versicherungswirtschafe with gross nonlife premiums written of 

$9,071.1 million. Th e country’s leading life insurer that year was 

Allianz Leben, with $11,554.2 billion in life insurance premiums 

written. Worker’s compensation, third party automobile liability, 

legal liability for drug companies, airlines, hunters, auditors, tax 

advisors, security fi rms, architects, lawyers, nuclear power station 

operators, and accident and health insurance are compulsory. Th e 

insurance sector is highly regulated and, despite the opening of 

the European Union (EU) market, it will be diffi cult for foreign 

companies to win the confi dence of potential German customers. 

Th e central banking system of Germany consists of the German 

Federal Bank (Deutsche Bundesbank), currently located in Frankfurt 

am Main (but which is expected to move to Berlin, the capital), 

one bank for each of the Länder (Landeszentralbanken), and 

one in Berlin, which are the main offi ces for the Federal Bank. Although 

the Federal Bank is an independent institution, the federal 

government holds the bank’s capital and appoints the presidents 

as well as the board of directors; the Central Bank Council acts 

as overseer. All German banks are subject to supervision by the 

German Federal Banking Supervisory Authority (Bundesaufsichtsamt 

für das Kreditwesen) in Berlin. 

Th e Federal Bank is the sole bank of issue. Until the advent of 

the euro in 1999 it set interest and discount rates. Th ese functions 

are now the domain of the European Central Bank (ECB). However, 

the Federal Bank maintains a leading role in domestic banking. 

Th e largest commercial banks are the Deutsche Bank, Dresdner 

Bank, and Commerzbank. In 1997 Germany had 232 commercial 

banks, including the “big three,” 56 subsidiaries or branches of 

foreign banks, and 80 private banks. Th ere are also 13 central giro 

institutions. In addition, there are 657 savings banks and 18 credit 

institutions with special functions, including the Kreditanstalt für 

Wiederaufb au (Reconstruction Loan Corporation), which is the 

channel for offi cial aid to developing countries. In all, there were 

over 45,000 bank offi ces in 2002. Th e German fi nancial system 

includes just under 2,700 small industrial and agricultural credit 

cooperatives and allied institutions, in addition to four central institutions; 

33 private and public mortgage banks that obtain funds 

from the sale of bonds; the postal check and postal savings system; 

and 34 building societies. In April 2000, a proposed merger between 

two of the “big three,” Deutsche Bank and Dresdner Bank, 

collapsed. Th e deal would have reduced operating costs by relieving 

both banks of their branch networks. 

Aft er the Bundesbank just missed its target range for M3 

growth for 1996 of 4% to 7%, it decided on a two-year target for 

monetary supply growth to cover the 1997-98 period leading up 

to the planned hand-over of responsibility to the ECB on 1 January 

1999. 

In 1996 Moody’s Investments Service capped an extremely poor 

year for Deutsche Bank by reducing its triple A rating to Aa1. Th is 

refl ects the fact that elite banks are fi nding it harder to retain the 

triple A rating as banking becomes internationally more competitive. 

Deutsche Bank announced that it hoped to shed 1,300 employees 

through attrition by 2000. 

Th e International Monetary Fund reports that in 2001, currency 

and demand deposits—an aggregate commonly known as 

M1—were equal to $544.8 billion. In that same year, M2—an aggregate 

equal to M1 plus savings deposits, small time deposits, 

and money market mutual funds—was $1,849.3 billion. Th e money 

market rate, the rate at which fi nancial institutions lend to one 

another in the short term, was 4.37%. 

Under the constitution, the governments of the Länder regulate 

the operations of stock exchanges and produce exchanges. Eight 

stock exchanges operate in Berlin, Bremen, Düsseldorf, Frankfurt, 

Hamburg, Hannover, Munich, and Stuttgart. Germany has several 

other independent exchanges for agricultural items. Th ere are no 

restrictions on foreign investments in any securities quoted on the 

German stock exchanges. However, a foreign (or domestic) business 

investor that acquires more than 25% of the issued capital of 

a German quoted company must inform the company of this fact. 

Th e most notable recent banking legislation is the January 2002 

elimination of the capital gains tax on holdings sold by one corporation 

to another. In 2004, a total of 660 companies were listed 

on the Deutsche Borse AG. Market capitalization in 2004 totaled 

41,194.517 billion. Th e DAX in 2004 rose 7.3% from the previous 

year to 4,256.1.

Aft er experiencing defi cits during 1979–81, Germany’s current 

accounts balance rebounded to a surplus of about dm9.9 billion in 

1982 and then kept rising to dm76.5 billion in 1986, primarily because 

of falling prices for crude oil and other imports, combined 

with appreciation of the deutsche mark relative to other European 

currencies. By 1989, Germany’s current account surplus was nearly 

5% of GNP. With reunifi cation, however, this changed immediately. 

Imports rushed in as former-GDR residents sought newly 

available consumer goods, and exports fell as goods and services 

were diverted to the east. As a result, Germany recorded current 

account defi cits since 1991, created in part because of the substantial 

foreign borrowing undertaken to fi nance the cost of unifi 

cation. Even so, large current account surpluses from the 1970s 

and 1980s helped Germany to maintain its position as the world’s 

second-largest creditor with net foreign assets estimated at $185 

billion in 1995. From 1990 to 1996, however, Germany’s share of 

world exports dropped from 12% to 9.8% due in large part to high 

labor costs which were making it hard for Germany to compete 

in the global economy. Germany in 2001 ranked second behind 

the United States in numbers of both exports and imports, and 

ran a current account surplus. By 2004, it was the world’s leading 

exporter, and had a current account surplus estimated at $73.59 

billion.

Germany is one of the world’s great trading nations. In 2003 and 

2004 it was the largest exporter in the world. In 2004, Germany’s 

exports amounted to $909.7 billion, compared with the United 

States’ $811.1 billion. German imports stood at $717.9 billion, resulting 

in a trade surplus of $191.8 billion in 2004. 

Manufactured products are the leading exports. Germany supplies 

a large portion of the world with automobiles and car parts. 

Germany’s motor vehicle exports made up 18.4% of its total exports 

in 2004. Diverse machinery exports, including nonelectrical 

and electrical parts, also account for a large percentage of the 

world’s exports in those commodities (and 14% of Germany’s total 

exports in 2004). Chemical products, telecommunications technology, 

in addition to devices for electricity production and distribution, 

are the next leading exports. Th e leading markets for Germany’s 

goods in 2004, in order of importance, were France, the 

United States, the United Kingdom, Italy, and the Netherlands. 

In 2004, Germany’s major imports were chemical products 

(11% of total imports), motor vehicles (10.3%), petroleum and 

natural gas (6.8%), machinery (6.7%), and computers and related 

products (4.8%). Germany’s leading suppliers in 2004, in order of 

importance, were France, the Netherlands, the United States, Italy, 

and the United Kingdom.