Economy of Germany Essay

Germany is located in the center of Europe bordering with Netherlands, Denmark, Belgium, Poland, Luxemburg, Czech Republic, France, Austria and Switzerland. Federal Republic of Germany has an area of about 357 010 square km (61^st in the world), which is equal to the general area of Wyoming and Kentucky. Population of Germany according to 2008 data is 82 060 000 people (14th in the world), and population density is 230 people per square km. Greater part of population is concentrated in large cities.

Favorable dynamics of the West-German export in the post-war period resulted in unchanging positive balance of payments and stable increase of course of the West-German Mark. But after the reunion of Germany, when East Germans began using widely the money for the purchase of products of West-German industry (not being exported at that moment) and imported goods, balance of foreign trade for Germany became substantially less favourable. Purchasing power of population was in GDR (German Democratic Republic) far less than in FRG (Federal Republic of Germany). Although 30 years before the reunion of Germany the wage level in two German states was approximately identical, prices for the luxury goods – cars, household appliances, clothes, meat, coffee, chocolate, etc. – grew considerably (Watkins).

After the reunion of Germany the active work began on reformation of education in new lands. For the educational system of former GDR were characteristic: large number of the planned indexes, excessive ideologization of education, congestion with auxiliary personnel and service structures. On the basis of FRG general law of education different laws were accepted in each of the lands. Absence of experience of federal democracy resulted in some incoordination between these laws having a number of contradictions with a federal law (Watkins).

The economy of Germany is characterized by the combination of social balance and market freedom. Basic features of this economic system are the following:

• providing full employment of population;
• social security, social justice and social progress (by providing social aid, social pensions and equalization payment, subsidies, grants, progressive scale of income-tax through the system of public welfare, labor and social legislation);
• private ownership of capital goods and free pricing;
• creating conditions for competition and providing of competition;
• conscious policy of strengthening of the economic growth in the market environment;
• policy of stable currency;
• freedom of foreign trade, free currency exchange (Berghahn 46).

However, the high level of social guarantees resulted in the problem when 40 % of net profits of German companies go to the labor compensation and deductions into social funds. From 100 euro of take-home pay 81 euro on the average go to employers’ deductions into social funds. The level of doles is great enough, which promotes the dependency of part of Germans. For maintenance of social relieves on the appropriate level a strong fiscal pressure is used on the population and companies. By the end of 1990s the level of taxation in the country reached extraordinary sizes. Thus, if the USA spent on taxes at that time about 32 % of the retained earnings, Great Britain ”” 45 %, in Germany this index reached 65 %. Today, the rate of the tax for retained earnings in Federal Republic of Germany is 50 %. In the end of 2000 Germany reached a certain peak of development of national model of economy which now needs serious modernization (Berghahn 138).

Another feature of economic way of development of Germany is the so-called “Rhenish Capitalism», characterized by the considerable role of banks in the economy of the country. For the economy of Germany the high degree of industrialization is also characteristic. If compared to many developed countries of the world, a very large stake in the production of GDP is made by industry which is basic direction of specialization of FRG in the world economy. As the result of the historically conditioned reasons there is unequal economic development within the framework of territory of the country. Integration and modernization of economy of the East of Germany remains a problem, requiring time and heavy financial expenditures. The annual investments of federal government here make about 100 billion dollars (Holscher 65).

One more feature of German economy is its export orientation. The state is interested in the open market, and during the last decade considerable expansions of presence in the world market have been made. According to the data of the International Monetary Fund, since 1997 the German export of goods and services has been growing faster, than volumes of the world trade. Even in 2001, when the volume of world trade reduced by 0,2 %, the export of Federal Republic of Germany grew by 6,7 %. Major business partners are countries of the European Union, especially France (in 2004 Germany exported there goods and services for the amount of 75 billion euro) and Great Britain (61 billion euro), as well as the USA, India, China and countries of Eastern Europe in connection with expansion of EU to the East (Holscher 197). Nevertheless, such prosperous countries as Great Britain, the USA and Japan are considered to be economical rivals of Germany, especially in spheres of automobile industry, technology and innovation production.

Traditionally one of the leading branches of economy of Germany is industry the stake of which in GDP of the country is 29% (in 2003), and in the total export – 87% (2006), which makes it an engine of the foreign trade. 8 million people work for industrial companies here.

The largest German companies have their subsidiary companies, production and research capacities all over the world. Among them are well-known automobile corporate groups Volkswagen, BMW, Daimler, chemical Bayer, BASF, Henkel Group, electro-technical corporate group Siemens, energy – E.ON and RWE or the Bosch Group (Berghahn 218).

The significance of the sphere of services, which almost got up to the industrial sector of Federal Republic of Germany today, has risen considerably. Some traditional industries, for example, steel-making and textile industry, in the last few years have seriously lost their positions as a result of shifting of markets of sale and competition from the side of countries with low salaries or, as in the case of pharmaceutical industry, as a result of mergers and incorporation passed to the property of foreign companies (Berghahn 327).

The total Germany GDP for 2008 was $3 322 147 (4th in the world), and GDP per capita made $40 415, GNI per capita made $36,810.

Lately the stake of industry in the economy reduced considerably. As a result of long-term structural changes its stake in GDP in the period between 1970 and 2001 went down from 51,7% to 23,8%. Meanwhile, the stake of services provided by state and private sector in GDP grew sharply. In 2008 the level of inflation in Germany made 3,3%, which became the highest index for 15 years, but in other European countries this index appeared even worse – 4,1%. Experts also expect German economy to reduce by 2,25% this year (Deutsche Welle). At the same time, Germany’s HDI is 0.940, which is 23^rd parameter out of 179 countries ranked.

According to the agency Bloomberg the unemployment rates in 2009 in Germany made 7,9%. The index of unemployment has been growing in Germany for four months already. As experts consider, the main reason of this growth is the falling of German export, reduction in production and discharges, caused by the world economic recession. The government of Germany announced of its readiness to pay social security to the personnel, transferred to the part-time work. Therefore some German companies prefer to reduce working hours not discharging the employees. Nevertheless, the experts state that the economy growth in Germany will continue, but in more slow rates (Buergin).