Overview

Germany


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Politically powerful in Europe, Germany also has a large and successful economy, though it is becoming less competitive

Germany has three main geographical regions. From the North Sea and Baltic coasts southwards, covering roughly one-third of the country, are the lowlands of the North German Plain. This leads to a belt of central uplands running west to east, cut through by major rivers, including the Rhine and the Weser. Further south still are the South German Highlands culminating in the Alps at the borders with Austria and Switzerland.

The 1990 reunification of Germany created by far Europe's largest national population. Today there are 15 million in what was East Germany and 67 million in what was West Germany. Germany also has the largest number of immigrants in Europe—around 9% of the population are foreign nationals, the largest proportion from Turkey. Many of these are former ‘guest workers’, who arrived in the 1970s and have chosen to settle. Others are refugees and asylum seekers who came at the end of the 1980s, including more than two million people of German ancestry.

From the 1950s, West Germany developed into Europe's most dynamic industrial nation. East Germany lagged far behind and the merger of the two economies proved difficult and expensive. Germans still have to pay a ‘solidarity tax’ which adds around 5% to the normal tax bill. This pays for extending social benefits to the East, raising wages, and repairing extensive environmental damage. Even so, wide gaps remain. In 2007, unemployment nationally was 8% but in the East was 15%.

Nevertheless, this remains a powerful industrial economy—the world's third largest after the USA and Japan. Its strength has been highly efficient manufacturing industry, which accounts for around one-fifth of GDP and two-thirds of exports of goods and services. The most important sectors are machinery, cars, and chemicals. Built around this is a large service sector. Agriculture employs few people but the country is still 70% self-sufficient in food.

The economy has been organized in a fairly coherent way—built around the idea of the ‘social market’. Rather than relying on the short-term vagaries of stock markets, investment has been based on long-term partnerships between banks and companies. Another feature has been cooperation between companies and the powerful trade unions. Though membership has been falling, one-third of workers still belong to trade unions and wages are settled annually in national rounds. In addition, workers are entitled to participate in management through works councils and have seats on the boards of the largest companies.

Germany also has one of the most generous welfare systems with high unemployment benefits and pensions. Employers argue that these costs make the country uncompetitive. Hourly wage costs are higher than in the USA or the UK.

Germany's economic model under fire

The German model has, as a result, come under increasing pressure. Many years of low growth, combined with the costs of reunification, have been eroding Germany's economic position, and have taken the budget deficit beyond the levels permitted by the EU's growth and stability pact.

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Subjects: Second World War.


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