germany agenda 2010

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Germany

- Group E

Economic EnvironmentGroup E F2IE Business School

Agenda

Coffee Marketin Italy

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Country OverviewInternal ContextInternational ContextPeriod of AnalysisTimelineObjectivesPoliciesAnalysis 1

Economic EnvironmentGroup E F2IE Business SchoolGERMANY IN 2000 - 2007Period Overview Context Objectives Policies AnalysisEURO ZONEPOLITICAL CHANGEDOTCOM BUBBLESTRUCTURAL REFORMSHIGH UNEMPLOYMENT


Country Overview

Germany in 2000Capital:BerlinInhabitants:82.25 mn (1st in Europe, 16th worldwide)Area:~360,000 km (5th in Europe, 63rd worldwide)Segmentation:16 federal states (3 city states)GDP: 2.114 bn (1st in Europe, 4th worldwide)Period Overview Context Objectives Policies Analysis


Country Overview

Germany in 2000Capital:BerlinInhabitants:82.25 mn (1st in Europe, 16th worldwide)Area:~360,000 km (5th in Europe, 63rd worldwide)Segmentation:16 federal states (3 city states)GDP: 2.114 bn (1st in Europe, 4th worldwide)GDP per capita: 25,708Unemployment:7.7%Government:Federal parliamentary constitutional republicPresident:Johannes Rau (SPD)Chancellor:Gerhard Schrder (SPD)Legislature:- Bundestag (Upper House)- Bundesrat (Lower House)Formation:- 01 January 1958 (Federal Republic)- 03 October 1990 (Reunification)HDI:0.854 (8th worldwide)Gini:28.3Period Overview Context Objectives Policies Analysis


Internal ContextPeriod Overview Context Objectives Policies AnalysisGermany in 2000After a short economical boom due to the reunification of eastern and western Germany, the 1990s were shaped by- low economical dynamic- mass unemployment (between 8%-11.5%, in 2000 7.9%)-Reformstau, the public perception of missing political or structural reforms; this was mostly due to the blockade policies of the opposition partiesDespite the Aufbau Ost, the development of the eastern German (former DDR) states did not gather momentum as intended (blhende Landschaften)In October 1998, Gerhard Schrder (SPD) succeeded Helmut Kohl (CDU) after an 18 years governance periodHis red/green cabinet promised drastic changes in the social, pension and health sectors


Political changePeriod Overview Context Objectives Policies Analysis

1982-19981998-2005Helmut KohlGerhard Schrder


October 1998

Gerhard Schrder becomes new chancellor

January 1999

Introduction of EURO as accounting currency

March 2000Enacting of Lisbon-Strategy

January 2002Introduction of EURO as physical currency

February 2002 - 2006implementation of HARTZ-REFORMS

March 2003AGENDA 2010

November 2005Merkel succeeds Schrder after call for vote of confidence

June 2006FIFA World Cup 2006Period Overview Context Objectives Policies Analysis


Agenda 2010Period Overview Context Objectives Policies AnalysisSpecial EU summit in 2000 enacted the Lisbon-Strategy with the goal to make Europe the worlds most competitive dynamic and knowledge-based economical areaReasoning: neither directives nor governmental investments will permanently improve employment; instead, the state has to give incentives for private investmentsMeasures included: New regulatory of exemptions and introduction of Arbeitslosengeld II for the labor market25% increase in spendings on educational sectorRenewal of the Health Insurance legislaturePension insurance caps for current contributorsTax incentives for family and children care


Hartz ConceptPeriod Overview Context Objectives Policies Analysis

Main goals were a more efficient labor market policy and the reformation of the public employment agency servicesReason for the Hartz concept was the Vermittlungsskandal, a huge scandal in which the Bundesagentur fr Arbeit was accused of blatant mistakes and manipulations in the employment service statisticsThe reforms of the committee were implemented in four steps (Hartz I-IV) between January 2003 and January 2005Measures included:- Raise of social acceptance for temporary employment (Hartz I)- Introduction of Minijobs, Setup of Jobcenters, Ich-AG (Hartz II)- Restructuring of Arbeitsamt into Bundesagentur fr Arbeit (Hartz III)-Pooling of Arbeitslosenhilfe and Sozialhilfe into Areitslosen-geld II (Hartz IV)


Fiscal ReformPeriod Overview Context Objectives Policies AnalysisThe Steuerreform 2000 has been declared by the Bundestag in July 2000 combined with the SteuersenkungsgesetzReduction of marginal income tax rate from 25.9% to 15%Reduction of top income tax rate from 53% to 42%Increase of the GrundfreibetragReduction of corporation tax rate from 40%/30% to generally 25%Main goal was the increase of competitiveness of the German economy by tax reliefs for employees, families and corporationsFacilitation of growth and employmentTransparency and fairness of taxationPlanning reliability in the taxation systemImplementation of the reform caused a lot of critique, since the government bought the approval of several federal states by promising them financial incentives


Importance of Potential Growth

Period Overview Context Objectives Policies AnalysisTECH CRASH


Y = total production L = labor input K = capital input A = total factor productivityProduction Function Potential growth can be boosted by:

Period Overview Context Objectives Policies Analysis


Structural Problems

Negative contribution of labor input to growth.Negative labor productivity. Period Overview Context Objectives Policies Analysis

Economic EnvironmentGroup E F2IE Business SchoolDemographics: Aging of the Population

This problem is hard to solve in both short and medium term



Assuming no policy change, this could lower government revenue and increase age-related expenditure.

Challenges for Potential GrowthPotential growth for EU 2%Germany 1,5%.Period Overview Context Objectives Policies Analysis




2000-2007: Supply-Side Reforms After entering euro-zone, Germany low inflation resulted in having the highest real interest rates in EuropeNo ability to engage in monetary policy + fiscal policy constrained by the Stability PactNeed to internally devalueTough supply-side reforms to drive up its international competitiveness


Economic EnvironmentGroup E F2IE Business SchoolMake labor market more flexible12 months as a maximun time for unemployment benefitsEasier to fire and hireIncrease consumer expenditureReduction of progressive tax rateFinancing by slashing federal subsidies and privatizing government-held properties

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2000-2007: Supply-Side Reforms Period Overview Context Objectives Policies Analysis


Results of Supply Side Policies

World Leader:#1 in Trade Account#2 in ExportPeriod Overview Context Objectives Policies Analysis

Economic EnvironmentGroup E F2IE Business SchoolTHE OTHER SIDE OF THE COINCreation of alternative employment mini-jobs led to decreased total hours workedBenefits cut accelerated social inequality


Economic EnvironmentGroup E F2IE Business SchoolTHE OTHER SIDE OF THE COINThe Gini coefficient increased up to 0,3 during the 2000sThe increase on wages concentrated on already high wages


Economic EnvironmentGroup E F2IE Business SchoolFUTURE PRODUCTIVITYWhat about CAPITAL INPUT?

An ageing society needs to invest domestically to make its workers more productive, because these workers will need to support pensioners in the future. Period Overview Context Objectives Policies Analysis

Economic EnvironmentGroup E F2IE Business SchoolSavings VS Investment


Economic EnvironmentGroup E F2IE Business SchoolInvestment in software, R&D and know-how is low compared to countries like the US that have similar levels of investment in equipment


Economic EnvironmentGroup E F2IE Business SchoolGerman public investment in education is very low as a share of GDP



RecommendationsPeriod Overview Context Objectives Policies Analysis


Danke fr eure Aufmerksamkeit


Daria AleshinaJess MonzNicole PagnoniJoaqun A. Ramirez MongilRamn Schmitt


germany agenda 2010

Economy & Finance