Germany: Economic and Political Outline

Economic Overview

Germany is Europe's largest economy, which explains its leading role in managing the current debt crisis of the eurozone. Over the last few years, its performance was not optimal due to the country's vulnerability to outside shocks, domestic structural problems and ongoing difficulties in integrating the formerly communist eastern part. Strongly hit by the international financial crisis, Germany went into recession in 2009 and then recovered growth in 2010 (3.3%) under the combined effects of the stimulus plan and the resumption of international trade and investment. Some believe that the pre-crisis level of activity will be reached as soon as at the end of 2011.

After resuming  in 2010, growth in Germany slowed down in 2011 as a result of the debt crisis in the eurozone. Growth for 2011 is estimated at 3% (IMF) and prospects for 2012 are bleak, due to the return of the specter of recession.

The main challenge for the German government is managing the debt crisis of the eurozone, which undermines confidence and growth. While seeking to reduce its budget deficit and high public debt, Germany will exert pressure on the eurozone countries to reduce their budget deficits in compliance with the December 2011 European agreement (which puts the maximum structural deficit at 0.5% of GDP). Continued recapitalization of the banking sector will also be necessary. Despite this restrictive policy, the government will seek to protect funding for education and research. The unpopularity of the bailout of financially weak European countries among German taxpayers also represents a political risk.

Despite the gravity of the recession, Germany has managed to keep its unemployment rate at around 6.5%, and it is now further decreasing. However, the challenge of integrating the former East Germany, where unemployment is very high, persists.

Main Sectors of Industry

The German agricultural sector contributes about 1% of the GDP and employs about 2,5% of the active population. The sector has greatly benefitted from State subsidies. Main agricultural products are milk, pork and livestock farming, sugar beet and cereals. Consumers prefer organic agriculture. The country is going through a process of deindustrialization of the food sector. 

The contribution of the industrial sector to the GDP has dropped from 51% in 1970 to about 29% today. However, the German economy still has some specialized sectors such as mechanical engineering, electric and electronic equipment, automotive and chemical products. The automotive industry is one of the country's largest industrial sectors and Germany the world's 3rd largest exporter of cars. German decision to abandon civil nuclear energy by 2022 is also likely to remodel the German industrial landscape.

The tertiary sector contributes about 70% to the GDP. The German economic model relies mainly on a dense network of SMEs; there are more than 3 million of them employing 70% of the salaried workers.

Source: World Bank - Last Available Data.

Indicator of Economic Freedom

Score:

71.8/100

Position:

Mostly free

World Rank:

23/179

Regional Rank:

12/42

Distribution of Economic freedom in the world
Source: 2011 Index of Economic freedom, Heritage Foundation

Note: The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labor freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.

Sources of General Economic Information

Ministries

Ministry of Finance
Ministry of the Economy and Technology
Ministry of Cooperation and Development
Ministry of Food, Agriculture and Consumer Protection
Ministry of Transport, Building and Urban Affairs
Ministry of Culture and Research

Statistical Office

Federal Statistical Office

Central Bank

Deutsche Bundesbank

Stock Exchange

Deutsche Börse Group

Other Useful Resources

Central Federation of Associations of International Trade Representatives and Agents

Main Online Newspapers

Handelsblatt
Financial Times Deutschland
Frankfurter Allgemeine Zeitung

Economic Portals

German business portal

Political Outline

Type of State

Germany has 16 States or provinces, which have local governments and legislatures that enjoy considerable decentralization in relation to the federal government.

Executive Power

The Head of government is the Chancellor, who is elected by absolute majority in the Federal Assembly for a four year term.The Chancellor holds the executive power, which includes implementing the law and managing the everyday business of the country. The Federal Ministers (Council of Ministers) are appointed by the president on the recommendation of the Chancellor.

The Head of State is the President. He is elected for a five year term by the Federal Convention (which includes the members of the Federal Assembly and an equal number of delegates elected by the provincial legislatures). The role of the president is mainly ceremonial.

Legislative Power

The legislative power in Germany is bicameral. The parliament is made up of two houses: the Federal Assembly (the lower house), with 613 seats, whose members are elected by universal suffrage combining proportional and direct representation, for a four year term. And the Federal Council (upper house), with 69 seats, whose members are delegates from the 16 provinces of the country for a 4 year term. There are no elections for the Federal Council. Its composition is determined by that of the provincial governments. The government depends directly or indirectly on the support of parliament, generally expressed by a vote of confidence. The Chancellor cannot dissolve parliament directly, but he can recommend its dissolution to the president if there is a vote of no confidence within the Federal Assembly. Legislative power belongs both to the government and the parliament. German citizens enjoy considerable political rights.

Main Political Parties

- Christian Democratic Union (CDU): conservatives
- Christian-Social Union (CSU): conservatives
- Social Democratic Party (SPD): social democrats
- Free Democratic Party (FDP): liberals
- Bündnis90/die Gruenen: left/green

Current Political Leaders

President :  Joachim GAUCK (since 18 March 2012) - Independant
Chancellor : Angela MERKEL (since November 2005) CDU, head of a coalition backed by the CSU and the SPD.

Next Election Dates

Chancellor: March 2012
Presidential: June 2017

Indicator of Freedom of the Press

World Rank:

18/179

Evolution:

1 place down compared to 2010

Source: Worldwide Press Freedom Index 2011, Reporters Without Borders

Note: The world rankings, published annually, measures the violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position is assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire sent to partner organizations,150 RWB correspondents, journalists, researchers, jurists and activists of human rights, including the main criteria - 44 in total - to assess the situation of press freedom in a given country. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).