Photo: flickr user: smitty42
Germany has the largest economy in Europe and as a consequence will be bearing the brunt of the bailouts of debt-stricken European nations.Here is what you need to know about the German economy which in the past has been called a “miracle.”
The term 'Wirtschaftswunder' (German for economic miracle) was coined for West Germany's quick economic recovery after World War II.
Currency reform, elimination of price controls, longer work hours, and the reduction of the marginal tax rate are often given as reasons for the quick recovery.
Source: The German Economic Miracle
Reunification between East and West Germany cost more than $1.9 trillion, and economic output in East Germany is still less than 80 per cent of the output from the western part of the country more than 20 years after the fall of the Berlin wall.
$12 billion dollars a year was still being transferred between West and East as recent as 2008.
While much of the economic activity in France or the UK is based in their capital cities of Paris and London, there is not a single economic hub in Germany. Only 3 of Germany's top companies are based in Berlin, and the German stock exchange is in Frankfurt.
Over the past decade, household debt in Germany has fallen from 115% of disposable income to 99%. In America, the number rose from 100% to 128%, and in the UK, it rose from 117% to 170%.
Source: The Economist
The project by Chancellor Schroeder was known as Agenda 2010 and was meant to reduce the unemployment rate and stimulate growth. The programs included large tax cuts as well as cuts in social benefits.
Unemployment has fallen since the reforms were taken, but income inequality has risen.
Source: Deutsche Welle
Germany recently lost the title of Europe's largest producer of wind power to Spain, but it is still heavily involved with renewable resources, especially as it recently abandoned nuclear power in the wake of the Fukushima disaster.
The Economist warns that Germany faces some problems in the future because:
- Germany's trade surplus has to keep increasing to contribute to GDP growth the way it has in the past.
- Germans tend to save instead of spend so consumer spending only grows at a rate of about 0.3% a year.
- Productivity growth has been relatively slow.
- Much of Germany's surplus has been poorly invested, the Economist argues, in things like Greek government bonds and American subprime bonds.
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