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Economic System Of Germany Essay, Research Paper

Germany?s Economic System

The Federal Republic of Germany?s economy has now flourished despite its harsh times that have been faced throughout the decades. Most people know about Germany from its historic involvement in World War II; its successful campaign to unite East and West with the successful collapse of the Berlin Wall; and its world class development and production of automobiles. Unfortunately, what most people don?t know is that Germany continues to fight an uphill battle in keeping its established ranking among the world?s most important economic powers.

A historic look back at Germany shows that after its fall in World War II, it needed a massive rebuilding in order regain its status that it once held. Various events took place that helped it re-climb the pedestal ladder. The year 1948 brought a currency reform that was the turning point for economic reform. There was a continuous economic growth each year for Western Germany, but the strict, conservative ways of East Germany?s communist rule still slowed true growth in the Gross Domestic Product (GDP). To make matters worse, the whole country experienced a significant drop in its GDP, causing a recession from 1976 through to 1985. There was a growth again for the next eight years before a major down ward spiral began in 1992.

Germany?s early ?90s spiral was attributed to the reunification of the country between 1989 and 1990. Once the two countries formed their one republic, the economy took its major tumble. Economists have figured this to be true because West Germany continued to evolve with industrial and technological breakthroughs and standards, while the communist East Germany adhered to traditional, unproductive ways that in some cases dated back to the 1940s and World War II times. So instead of combining to form an economic powerhouse, the GDP tumbled and caused a massive surge to restructure and work began to regain the decades of reform that were no longer noticeable. The Republic formed after reunification consists of 16 states, which is still looked at and measured as East and West Germany. Despite all of these states following the established free-market economy, there is still a noticeable gap between the economies of the two sections. German government assistance of nearly $100 billion annually has helped contribute to an increased growth rate for eastern states. Despite this growth, a look at the added Gross Domestic Product (GDP) of eastern states ? $108.3 billion, an increase of 9% from the previous year ? shows it falls significantly short of the $1.23 trillion GDP of western states. The Western states recouped with a 2.3% increase that year, recovering from their 1.9% decline the previous year. So combined, this gives the Republic a valued GDP, in 1994, of nearly $1.34 trillion. To note another significant difference ? the $5,950 national product per capita for workers in the East severely undercuts the $19, 660 for Western workers.

One of the largest contributors to the GDP is manufacturing and the goods that it produces ? claiming nearly 40% of the total GDP every year since 1992. This shows that the industry has steadily improved after its immediate 40% tumble it took back in 1989. It has not yet been figured if the GDP dropped because of the lack if manufacturing output, or the fact that both East and West Germany were now being figured into the equation as one instead of a split.

Germany?s main industrial area is the Ruhr Valley, in which a various amount of products are produced. The principle production item is the refinement of petroleum. This ranks first among other items such as steel castings; iron; cement; chemicals, resins and plastics; automotive vehicles, railroad rolling stock, aircraft; and cotton and other woolen fibers.

Agriculture accounts for 2% of the GDP. Its chief vegetable crops include cabbage, carrots and cauliflower; while pears, apples, plums and strawberries lead the fruit crops. The country is also a leader in the production of hops, which helps contribute to its notoriety in the beer-industry. Wine grapes grown in the Rhine and Moselle Valleys help develop that notable industry.

Germany has a fair balance of trade. Its exports include chemicals, motor vehicles, iron, steel and other raw materials. The value of these and other exports in 1996 where estimated at DM772 billion. Among items imported into the country are electrical products and apparel. With these products, the value of imports to Germany were DM670 billion. The most trade activity occurred with France, valuing their partnership at DM71 billion for exports and DM84 billion for imports. The United States figures stand at DM48 billion and DM60 billion form import/export respectively. The largest difference in commodity distribution is raw materials with DM35 billion of it being imported and DM6 billion being exported.

German government, or Bundestag, has continued to work hard to make sure that the economy has continued on the path to stabilization. It had faced tough issues that have arisen because of unification. The Bundestag may make the decisions on what to do about the economic status and how to make corrections, but it is the job of the Central Bank to carry them out. The economic growth of Western Germany had see-sawed considerably. There was a economic boom caused by the increase in consumer demand and capital spending for two years followed by a drop. All this happened as the eastern states needed an increase in support payments to help them get back on their feet. The Central Bank, known as the Bundesbank, needed to prevent any more pressures of inflation placed on them. In doing so, a high, short-term interest rate was instituted ? thus curbing any further economic activity. The Bundesbank saw an improvement in conditions and the eastern states experienced a 10% rate of growth, one of the highest in the entire European region. To further improvement, the Bundesbank saw the appreciation of the Deutsche Mark.

Unemployment is one problem that has faced the country for decades. From the horrors of World War II to 1998, Germany has faced this problem forever. It has reached its highs and lows, with a 1996 statistic stating that of the 39.96 million in the work force, 3.97 million of those were unemployed. A large part of it has to do with the country?s economy that continues to see-saw, requiring quick intervention by the Bundesbank and Bundestag. The eastern states faced the worst of it because to this day they continue to reform and with reform comes work force reduction. Germany?s labor is fully unionized and the government has special courts to help settle any disputes. To help further curb the unemployment rate increases, a national program is in place to help place workers whose jobs have been phased out due to automation.

Germany has had its share of economic hardships and successes. It?s the commitment to the people by the Bundestag that has helped rank it among the top economic powers of the world.


Clements, John, ed. Clements? Encyclopedia of World Governments. Dallas, TX: Political Research, 1996.

Culturegrams 1995. Brigham Young University: David M. Kennedy Center for International Study, 1998.

?German Economy.? Online. Available at http://www.cnnfn.com.

?Germany.? Encyclopedia Britanica. 1997 edition.

Turner, Barry, ed. Statesman?s Yearbook 1998-1999. New York, NY: Macmillan Reference, 1998.

United States Department Of State. Germany. Background Notes. Washington, DC: Department of State, 1995.

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