Meet Germany, The Strong Man Of Europe

Germany Flag

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 Basics

Germany is the 5th largest economy in the world, and the largest in Europe.

GDP (PPP): $2.94 trillion

GDP growth (2010): 3.6%

Credit Rating: AAA (S&P)

Source: German national statistics agency, CIA World Factbook

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 cost more than $1.9 trillion and the Western Part of Germany is still stronger

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.

Source: Reuters and CIA World Factbook

Germany is the world's second-largest exporter

Germany is a leading exporter of machinery, vehicles, chemicals, and household equipment. Germany is second only to China in how much it exports.

Source: The Independent

Unlike the UK or France, Germany does not have a single economic hub

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.

Source: Forbes

Germany has one of the lowest unemployment rates in the Eurozone

Germany's unemployment rate is 6%. Comparatively, Spain's unemployment rate is over 20% and Greece's is 15%.

Source: Eurostat

Germans on average have less household debt

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

Inflation-adjusted pay in Germany raised 30% since 1985

In the same time period, inflation-adjusted pay rose only 6% in the United States.

Source: The New York Times

Germany underwent a series of reforms after a period of slow growth in the early 2000s

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

Germans have one of the longest work weeks in the Eurozone

At 40.6 hours on average worked a week, Germans spend more hours at work than the eurozone average.

Source: Eurostat

Germany did not experience a housing crisis on the scale of the United States

German banks often required a down payment of 40% in order to buy a house, unlike many American banks at the time of the housing bubble.

Source: New York Times

Germany is one of the largest producers of wind power

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.

37 of the world's largest companies are based in Germany

The 10 largest German companies are Volkswagen, Allianz, E.On, Daimler, Siemens, Munich Re Group, BASF, and BMW.

Source: CNN

But is the strong man getting sick?

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.

Now to France, Europe's second largest economy...

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