Germany - A View from Abroad Part 2

Question 1

The Economy I

Answer 1

• economic powerhouse: Europe’s biggest economy, strong export-led growth, dominance in cars, chemicals, machine tools and in premium niche markets
• technical expertise, specialisation, reputation: quality label “Made in Germany”
• German Mittelstand: unique base of traditional. well-funded, family-run companies with a highly skilled and well trained workforce, hidden champions in niche markets, global players

Question 2

The Economy II

Answer 2

• sound record: low unemployment rate, balanced budget, decreasing government debt, low long term bond yields
• emphasis on stability: Ordnungspolitik
• social market economy combining free market capitalism with a wide-ranging social security system

Question 3

Reasons for Germany’s economic success

Answer 3

• fiscal pragmatism, domestic austerity
• comprehensive system of vocational training, apprenticeship
• labour market reforms: Agenda 2010 reduced taxes, merged unemployment and welfare benefits and increased the flexibility of the labour market
• German Kurzarbeit: an agreement to avoid losing off employees by reducing the working hours instead, with the government paying parts of the lost income - particularly effective during the Great Recession and in effect now during the current crisis
• relatively low unit labour costs: wage restraint and productivity improvement made possible by German Mitbestimmung

Question 4

Criticism of the Economy

Answer 4

• too export-oriented, too little domestic demand: the German business model is not sustainable
• heavily reliant on other markets to compensate for weak domestic demand
• huge current-account surplus at the expense of other countries: imbalance of savings over investments
• taking advantage of a relatively weak Euro in a monetary union without a common fiscal and political approach
• Agenda 2010 criticized for representing a huge cut in the social security system
• lower share of national income that goes to labor, thus contributing to increased inequality and reduced consumer demand

Question 5

Environmetal Policy

Answer 5

• eager to retain a leadership position in international talks
• Energiewende (concrete plan started in the 1990s): commitment to renewable energy, turning away from nuclear energy: renewables (approx. 25 % of electricity production)
• polls show that most Germans favor reducing emissions
• conservation of natural resources, energy efficiency to ensure equal benefit for the environment and the economy

Question 6

Environmental Policy - Problems

Answer 6

• unpredictable energy policy since 2010 – two u-turns (second u-turn because of Fukushima) concerning the phase-out of nuclear power (by 2022)
• reliance on coal power stations, rise of CO2 emissions: “Energiewende paradox”; collapse of carbon trading system, market distortions due to subsidies
• rising energy costs jeopardize Germany’s industrial base, making it more difficult to compete globally
• German energy bills are 48 % higher than the European average, Germany’s Mittelstand companies have to face energy costs almost three times the level of their US rivals