Germany (Deutschland)

Christopher SchmidtDarci Child

James CordellAmir De la Vega

The Plan

• History & Demographics• Current Situation• International Aspects• Special Problems• The Future

History & Demographicsby: Christopher Schmidt

World War I (1914-1919)

• Germany part of unsuccessful Central Powers

• Treaty of Versailles (1919)– “The War Guild Clause” Article 231

• Germany held solely responsible for all “loss and damage” suffered by Allies

• Large portions of Germany divided among Allies• Reparations of 6.6 billion pounds

German Revolution & Weimar Republic (1918-1933)

• November 1918: German Revolution breaks out & Republic proclaimed

• August 11, 1919: Weimar Constitution in effect

• German Communist Party established same year

German Revolution & Weimar Republic (1918-1933)

• January 1919: German Workers Party (Nazis) created

• 1920’s: Political unrest caused by world-wide depression & harsh peace conditions dictated by Treaty of Versailles

• January 29, 1933: Adolf Hitler named Chancellor of Germany

World War II (1939-1945)

• Sept. 1, 1939: Germany launches blitzkrieg on Poland

• Sept. 3, 1939: Britain & France declare war on Germany

• June 22, 1941: Germany breaks pact with Soviet Union

• Dec. 11, 1941: Germany declares war on the US

• May 8, 1945: Germany surrenders

Division & Reunification (1945-1990)

• Germany & Berlin divided into 4 military occupation zones

Division & Reunification (1945-1990)

• May 23, 1949: Federal Republic of Germany (West Germany) created

• October 7, 1949: German Democratic Republic created by the Soviet Zone

Division & Reunification (1945-1990)

• Nov. 1989: Border restrictions unexpectedly eased

• Oct. 3, 1990: Germany reunified

Today

• Germany is a democratic parliamentary federal republic made of 16 states

• Capital is Berlin

• Land Area of 357,000 km2

Demographics

• Population: 82.4 million

• Ethnic Groups: Germans & Turks

• Religions: Protestant & Roman Catholic

• Language: Standard German & English

• Literacy: over 99%

Current Economic Situationby: Darci Child

Historic Development of Germany’s Economic System

• Following WWII, Germany’s land, homes, and property were ruined. Millions of people didn’t have anything to eat or wear

• Economic and political leaders wanted to position Germany on a new path. They wanted a new economic system that would give everyone equal opportunities as well as economic prosperity.

• Ludwig Erhard took control over Germany’s postwar opportunity. He was given his chance by the United States officials.

• Ludwig Erhard’s first step was to create a new currency on June 21, 1948

• the currency reform established the foundations of the Western German economy

• Erhard put an end to most Nazi and occupation rules and regulations in order to establish a free economy

• The Germans started calling their new economy a “social market economy”

• The West German boom began in 1950.

• by 1960 industrial production had more than doubled the levels in 1950

• GDP rose by two thirds during the same decade.

• The number of people employed rose from 13.8 million in 1950 to 19.8 million in 1960 and unemployment fell

• During the 1960’s economic growth slowed down.

• In 1967 the Bundestag passed the Law for Promoting Stability and Growth, known as the Magna Carter of medium-term economic management.

• This law provided for coordination of federal, land, and local budget plans in order to give fiscal policy a stronger impact.

• During the next fifteen years, Germany faced fluctuations in growth

• In 1982, the government began to implement new policies to reduce the government role in the economy

• The government’s objectives were 1) to reduce the federal deficit 2) to reduce government regulations

3) improve the flexibility and performance of the labor market.

• Finally during the late 1980s West Germany’s economy began to grow more rapidly.

Unification

• On July 1, 1990 the Western German economy and the eastern Germany economy unified and became one economic and political union

• During the first phase of unification, eastern Germany went into a deep recession while Western Germany experienced a boom in their economy.

• Many easterners started going to the work in the West.

• By the end of 1990, about 250,000 people from the east were commuting to the west.

• By the middle of 1991 this number grew to almost 400,000

• Western Germany’s capital also increased significantly as eastern German deposits were placed in western German banks

• This sudden boom in Western Germany brought about the following problems

1) The financial shifts from eastern Germany to western Germany caused an over supply of money

2) Government deficits grew from large expenditures in Eastern Germany

3) Inflationary effects of the rapid growth rate

• In response, the Bundesbank raised interest rates, and after time the western German economy slowed down

• the 1992 depression continued into 1993 when the economy reached a negative growth rate of -1.2%

• By 1994 German growth resumed at an annual rate of about 2.4%

• In the last ten years, since the unification process, progress has been made in raising the standard of living in eastern Germany, introducing a market economy and improving infrastructure there.

• Eastern Germany still lags behind Western Germany. Eastern Germany’s unemployment is almost twice as high. Consumption and productivity levels are lower in eastern Germany.

Germany’s Current Economic System: Social Market Economy

• The model of the social market economy is designed to allow market forces to reign free within certain limits and to prevent unsocial outgrowths of market development. The supply of goods is increased and diversified; the providers are motivated to be innovative

• income and profits are distributed based on individual performance.

• ensures participation by employees in basic economic decisions and their participation in social achievements.

• Germany has the world’s third strongest national economy

• leading position in terms of its total economic output

• highest gross domestic product and the largest number of inhabitants in European Union

• most important market in Europe.

• Germany has qualified and motivated employees, an internationally recognized education system, a well developed infrastructure, and top achievements in Research and Development

Industry

• Germany is one of the world’s leading industrial nations. In the last few years, Germany’s industry has boomed. Germany now holds a leading position in the international markets.

• The 49,000 German industrial undertakings employ nearly 6.4 million staff.

• the services sector in Germany is growing and is almost as large as its industry

• Germany is the world’s third largest automobile producer, with more than 70 percent of vehicles produced intended for export.

• Germany is also a world leader in the chemical industry

• The growth of information technology and bio-technology is above average

• The trade fair business is one of the leading service sectors of the German economy.

• Germany is the world’s number one venue in hosting international trade fairs

• About two thirds of the world’s leading trade fairs for individual sectors take place in Germany1) Hanover Trade Fair (the world’s largest industrial trade fair)2) Frankfurt Book Fair3) Computer fair CeBIT4) International Motor Show (IAA)

International Aspectsby: James Cordell

Exporting

• Germany is the world leader in exporting goods

• In 2003 Germany’s foreign trade surplus totalled 129 billion euros

• Its closest trade relations are with members of the European Union

• Nearly 72 percent of German exports remain within Europe

Exports

Export Partners• France 10.2%• U.S. 8.8%• U.K. 7.9%• Italy 6.9%• Netherlands 6.1%• Belgium 5.6%• Austria 5.4%• Spain 5.1%

Rank Country Exports Date of Information

1 World $10,330,000,000,000 2004 est.

2 European Union $1,318,000,000,000 2004

3 Germany $1,016,000,000,000 2005 est.

4 U.S. $927,500,000,000 2005 est.

5 China $752,200,000,000 2005 est.

6 Japan $550,500,000,000 2005 est.

7 France $443,400,000,000 2005 est.

8 United Kingdom $372,700,000,000 2005 est.

9 Italy $371,900,000,000 2005 est.

10 Netherlands $365,100,000,000 2005 est.

Exports

Exports

Main Exports• Machinery• Vehicles• Chemicals• Metals and Manufactures• Foodstuffs• Consumer Electronics• Textiles• Beer

Imports

Import Partners• France 8.7%• Netherlands 8.5%• U.S. 6.6%• China 6.4%• U.K. 6.3%• Italy 5.7%• Belgium 5%• Austria 4%

Rank Country Imports Date of Information

1 World $10,330,000,000,000 2004 est.

2 United States $1,727,000,000,000 2005 est.

3 European Union $1,402,000,000,000 2004

4 Germany $801,000,000,000 2005 est.

5 China $631,800,000,000 2005 est.

6 United Kingdom $483,700,000,000 2005 est.

7 France $473,300,000,000 2005 est.

8 Japan $451,100,000,000 2005 est.

9 Italy $369,200,000,000 2005 est.

10 Netherlands $326,600,000,000 2005 est.

Imports

Imports

Main Imports

• Machinery

• Vehicles

• Chemicals

• Foodstuffs

• Textiles

• Metals

International Trade Organizations

• G8

• European Union

G8

• “Group of Eight”

• Consists of Canada, France, Germany, Italy, Japan, Russia, the United Kingdom and the United States

• Represents about 65% of the world economy

G8

• G8 Summit held once per year

• Rotating yearly presidency

• Discuss international trade and economics

European Union

• Consists of 25 member nations

• Germany a founding member

• Germany helped found European Coal and Steel Community, a precursor to the EU, in 1951

• Has total GDP of $13,539,374,000,000

• Free trade among member states

Special Problems & The Futureby: Amir De la Vega

Special Problems• Socialist Labor/Consumer environment

– Weak Domestic Demand causes sluggish growth

– High Tax wedge on Labor Income• Low incentive to work

– Extensive Social Protection• Rigid Employment Protection causes a lack of demand for

labor• Protection incurs high non-wage Labor Costs (high

unemployment rates)

Special Problems cont.• After reunification a system of wage

negotiations was created

– Compressed wage scales for lower paying jobs

• The difference in pay for workers is narrower in Germany than in the US

• Reduced demand for low-skilled workers due to their higher wages compared to worldwide wages

Unique Characteristics• Manufacturing and Services are at the heart of the

German economy

• Geographical Location– Germany serves as an interface to new markets such as

• Southern Europe• Eastern Europe• The new boundaries beyond the new European Union

Unique Characteristics

• Economic effect of leading the world in exports

– 1 in 3 euros are generated through exports and their revenues

– Almost 1 in 4 jobs depend on manufacturing and servicing exports

Considerations• Germany currently has closest trade relations with

– Members of the EU (Germany generates over half of its turnover in foreign trade)

– France (In 2003 Germany’s strongest trade partner)

– USA

– Great Britain

Considerations

• Mercantilism

– Germany is a perfect example

• They thrive on increasing exports

• The decreasing domestic demand due to social markets reduces imports thus increasing the trade surplus

The Future• GDP growth is forecasted to decline from

2.2% in 2006 to 1.4% in 2007– Part of this is due to an increase in value-added tax

rates• 3% hike will start in 2007 to reduce Germany’s budget

deficit to under 3% of GDP (EU limit)• 1/3 of VAT revenue will go to reduce employer taxes

hoping it will cause a reduction in the 11% unemployment rate

• Tax hike may reduce recent consumption increase

– GDP may recover to 1.9% in 2008

• Outcomes on issues such as healthcare financing will play a big role in Germany’s economic future as well.

The Future

Germany (Deutschland)

Questions?