Transcript Germany`s Economy

GERMANY’S RISE TO THE
ECONOMIC POWERHOUSE
OF THE EU
Alex Vaudrain
Introduction




Germany currently holds Europe’s largest economy
and is the world’s fourth largest.
Germany uses a Social Market Economic platform.
Is the worlds third largest exporter, exporting
roughly 1.5 trillion dollars worth of product last
year.
34 of the Fortune 500 companies are based in
Germany including Volkswagen, Siemens, BMW,
Bosch, ThyssenKrupp, Bayer, and Duetsche Bank.
History 1800’s



In the early 1800’s thanks to the Napoleonic period in which
Germany became influenced by the Continental System, Serfdom
and Guilds were abolished and moved to a Common Market system
in 1818, though it was not until 1833 that all German states were on
board expect Austria. Austria was excluded by the Prussians.
This concept worked well, but it wasn’t until 1970 when Chancellor
Otto von Bismarck unified all the German states that the system
reached its full potential and jump started Germany’s industrial
revolution.
With the new unification of the states and the introduction of the rail
system coal became in high demand, something Germany had a lot
of which lead them to become the world leader in chemical
industries.
Post World War I



Germany going into WWI thought the war was going
to be won quickly and easily. With this philosophy, the
still imperialist government borrowed the money to pay
for the war instead of raising taxes and cutting
spending else where.
Germany was now dependant on winning the war and
having the allied forces pay reparation payments in
order to afford the war.
After four years of trench warfare in the west Germany
was in great debt and had an impending revolution if
the war did not end.
World War I
After signing the Treaty of Versailles the Weimar Republic was
formed, the Kaiser was removed and the socialist parties received
76% of the votes in the 1919 election.
 Now heavily in debt and required to make reparation payments the
German economy nearly collapsed and in 1921 French and Belgium
troops invaded to essentially pillage for materials and goods.
 By 1923 striking workers left Germany in a desprite state. The
government began printing exurbanite amounts of Reischmarks
causing massive hyperinflation.
 Cost of a loaf of bread in Germany:
Nov 1918: 1 mark
Nov 1922: 163 marks
Sept 1923: 1,500,000 marks
Nov 1923: 200,000,000,000
marks

Post WWI


The Weimar Republic allowed parties with a small
percentage of votes to be represented. This
allowed many radical groups to gain power. With
radical groups that would not compromise there was
a constant political standstill leading to further
economic troubles.
People began using the mark for wallpaper or
burning it for heat because it was more valuable in
those ways than to use it in stores.
1924-1929



These years were considered the “Golden Years”
American lent Germany large amounts of money to
get its economy back on track.
Industry grew exponentially and the German
economy was back and thriving.
This was until the collapse on Wall Street when the
American dollar lost value leading to the Great
Depression. This also lead to a great depression in
Germany since most of there money was backed by
the USD.
The Third Reich




The Nazi party seemed to have pulled Germany
out of the Great Depression.
From 1933 to 1939 unemployment dropped from 6
million to 302,000
Hitler's goal was to make Germany self-sustaining
and no longer need to trade with “outside
influences”.
German’s great economic success to the outside
world was unbelievable since the rest of the world
had massive unemployment and inflation.
Nazi Germany Economic Success


Germany’s success was nearly a trick on paper. Woman and Jews
were no longer considered on the unemployment numbers. Also
anyone who was unemployed was considered “work-shy” and
shipped to concentration camps. By 1939 the military was 1.4 million
strong and with that large influx the necessity for weapons, clothing,
and food put more people to work under the governments penny.
Hitler started workers unions which increased work week hours from
60-72 hours weekly. Strikes were outlawed and anyone who spoke
against the Nazi party for working so much were executed by the
Gestapo.
Hitler’s goal of independence was never achieved, 33% of raw
materials were imported. The government did see a 5 billion dollar
increase in income, but they also had a spending increase of 18
billion. When all was said and done the real earnings in 1938 were
the same as 1928.
Post WWII
Post World War II


In 1949 and 1950 Germany had a great successful relaunch of their economy. At a 15% annual growth rate and
24% production increase. These numbers though would only
be temporary if not for William Repoke, a liberal economist
by European definition but would be considered
conservative in America. William proposed higher interest
rates to encourage saving, lower income tax, and direct
inverstment with capital goods like coal steel and iron.
Even though there was economic success their was still a
capital goods shortage because of war destruction and
reparation payments. This discouraged entrepreneurs from
investing in fear that their goods would be confiscated.
Despite that by 1950 most of Germanys exports were
manufactured goods and its economy was on the right track.
1960s-1970s


After such rapid growth post WWII Germany
needed a plan to sustain growth. They currently had
full or overutilization of capital, 1% unemployment,
but their currency, the Mark was still undervalued.
Salaries caught up to growth and where 80%
higher on average.
Karl Schiller


German minister of economics from 1967-1972
Believed it was the governments duty to manipulate
the economy, not directly but broadly. During his
seat he increased social program spending by over
10%. The combination of these two and increasing
oil prices lead to the recession of 1973-1976
1976-1990


Though out of the recession growth was slow and
unemployment still high with increasing inflation and
minimal GPD growth.
This period was essentially a long fight to stay out
of another recession with a couple postive bumps
along the way.
July

st
1,
1990
For the first time ever in history a Capitalist and
Socialist economy converged into one. This had
never been done before, so their were no guidelines
on how to handle the situation.
Reunification and Its Results




In 1990 Eastern Germany fell into a deep recession as Western Germany
went into a boom due to the new Eastern market and newly available
workers.
The goal of the German government was to privatize all of the eastern
companies to the highest bidders. This was carried out by the Treuhand
which managed to privatize over 14,000 companies by 1994
The reason for the recession in the east was that entrepreneurs were afraid
to invest due to all the land claims. Since 1933 no one knew who owned
what leading to mass confusion which was sorted out by 1992. At this point
over 400,000 works commuted to the west for work.
As infrastructure updates in east Germany were required this put millions to
work causing a little more balance in the east vs west economies. By 1995
Germany was back in the black for growth and though the western
economy was much stronger there was more balance between the two.
The Euro



In 1999 the Euro was first introduced. This would be the
common currency of most European countries. The euro
made trade imbalances far less and international trade
much easier.
As a major manufacturing country with heavy exports
Germany benefited greatly by its introduction. The euro
was worth more per USD than the Mark.
Germany at this time was in a crisis much alike Spain,
Greece and France are now. They had to much
government spending and an aging population.
Agenda 2010


In 2003 Agenda 2010 was put into effect. This
drastically cut taxes by 25% and drastic cuts in
government medical cost absorption, pension reforms,
and unemployment benefits.
The Agenda was put into 4 parts. The first part was
designed to make new jobs, this included staff service
agencies, Investments in the higher education for
German people, and subsidence payments. Part two
invested in entrepreneurs and made it easier for
businesses to start up. Part three was the reform of the
job centers to put more people to work and gave a
stronger connection between the employers and the
unemployed.
Agenda 2010

Part 4 was the reform of unemployment benefits.
This cut the amount of people on unemployment
down and the amount of aid received. Now in order
to gain unemployment benefits a citizen is required
to sign a contract which states that if the state finds
them a job they are required to take the work
unless it impedes there rights.
Modern Economic Success



Most of the modern German economy is in manufacturing
high quality, high complexity, and high value goods. Thanks
to Agenda 2010 opening new businesses in manufacturing is
very easy and inviting for outside companies. This created
the German bussiness class The Mittelstand.
The Mittelstand are small companies of 500 or less
employees that make up 70% of the German economy.
These companies are mostly in the manufacturing business
and are extremely good at producing one highly complex
good.
The result of the Mittlestand is that in 66% of goods
manufactured in Germany are considered to be in the top
three best for that particular product.
Trade Surplus



Germany has a trade surplus meaning it exports
more than it imports. Last year Germany exported
1.5 trillion dollars worth of goods and only
imported 1.3 trillion
A major factor for this is that agriculture in
Germany only employs 2.4% of its population and
is only .9% of the GPD but satisfies 90% of the
countries nutritional needs.
German car companies including BMW, Porsche,
and Audi make up 90% of the luxury car market.
German Technology




Germany has one the most highly skilled labor
worces in the world. A strong connection between
education and employment leads to feats of
engineering and business.
Germany companies spend on average 23% more
on Reasearch and development than their American
counterparts.
Leading producer of wind and solar technologies
Third largest amount of Patents in the world
Governments role in current success





Tax cut up to 25%
Cut spending deficit from 4.1% in 2010 to .1% in
2013 through cuts in social spending and
unemployment benefits through Short Work.
Made opening businesses easier and gave
incentives.
Invested in Academia to train a highly skilled labor
force.
Essentially forced people to work if opportunity was
available.
The Reason the Rest of the EU is in
Turmoil



Did not cut taxes instead increased them.
Increased social spending and unemployment
benefits
No major manufacturing or manufacturing of high
quality or high complexity goods, so they are now
made in China.