GERMANY

Federal Republic of Germany

Bundesrepublik Deutschland

COUNTRY OVERVIEW

LOCATION AND SIZE.

Located in western Central Europe, Germany has an area of 357,021 square kilometers (137,810 square miles), which makes it slightly smaller than the state of Montana. The country is bordered by the North Sea, Denmark, and the Baltic Sea to the north; Poland and the Czech Republic to the east; Austria and Switzerland to the south; and France, Luxembourg, Belgium and the Netherlands to the west. The capital city, Berlin, is located in the northeastern part of the country.

POPULATION.

The population of Germany was estimated at 82.8 million in 2000, adding up to a 4.3 percent increase from 1990. The birth rate was only 9.35 births per 1,000 population and the death rate was 10.49 per 1,000, causing a decrease in the natural born population during 2000. The growth of the population during the 1990s was mainly due to immigration . The immigration rate was 4.01 immigrants per 1,000 population in 2000. The population of Germany has increased 21 percent over the second half of the 20th century, but it is expected to contract to 79.3 million by 2025 and 70.3 million by 2050. The birth rate is declining due to a fertility rate of 1.38 births per woman in 2000, far below the replacement threshold of 2.1 births per woman. The population, as in most of Europe, is also aging with a high life expectancy of 77.44 years for the total population (74.3 for men and 80.75 for women in 2000). In 2000, 16 percent of the population was 14 years old or younger, while an equal percentage was 65 years or older.

Germany's welfare system has supported population growth by offering social services, such as old-age pensions, health and unemployment insurance, disability benefits, subsidized housing, and subsidies to families raising children. However, these programs have so far failed to increase Germany's birth rate. Higher living standards and the modern economy restricted population growth during the 1990s. Germany's labor force is expected to shrink, particularly after 2020, and the number of pensioners will grow steadily. This decline in the ratio of active workers to retirees may force Germany by 2020 to bring in as many as 1.2 million immigrant workers annually (both skilled, such as computer programmers, and unskilled) to maintain its industrial output at 2000 levels. To offset these effects, the German government has encouraged policies that sustain the life of native workers such as better health care, nutrition, and adult education. Public social security system reform is also important as the number of taxpayers decreases, causing intense financial pressures on those who still work. Structural unemployment has prompted the government to offer early retirement options to those who have skills and want to work yet cannot find work in their chosen fields. This has increased the pressure on the German retirement system and welfare system as a whole.

Higher living standards in Germany continuously attract many economic immigrants, mostly from eastern and southern Europe and the Middle East. The country received a considerable number of refugees from the Yugoslav wars in the early 1990s. In 2000 ethnic Germans formed 91.5 percent of the population and the most significant minority group was the ethnic Turks (2.4 percent), while Yugoslavs, Italians, Russians, Greeks, Poles, and Spaniards made up the rest. In 1998 there were about 7.3 million foreigners in the country. Some Germans blame immigrants for taking jobs from native-born people, equating unemployment with foreigners. Some occurrences of racism and ethnic hatred have been reported throughout the country but mostly in the poorer eastern states.

The population density was 233.8 people per square kilometer (605.5 per square mile) in 1995. In 1997 about 57.4 percent lived in towns and cities of 20,000 or more inhabitants. Approximately 87.3 percent of Germans lived in urban areas in 1999, mainly in the industrial region of the Ruhr in the western portion of the country. The main cities are Berlin, the capital, with a population of 3.46 million; the free port city of Hamburg on the River Elbe in the north, with 1.71 million; the Bavarian capital Munich in the south, with 1.23 million; Cologne on the Rhine in the west, with 964,000; Frankfurt am Main, a major European financial center, in west central Germany, with 648,000; and Dresden and Leipzig, historic cities and cultural centers in Saxony in the east, each with approximately 450,000 (2000 est.).

OVERVIEW OF ECONOMY

Germany has traditionally been the largest economy in Europe and a world leader in science and engineering. It had the third largest economy in the world in 2000, following the United States and Japan. In 2000 it contributed for about one-third of the gross domestic product (GDP) of the eurozone (the 11 member countries that joined the European Monetary Union in 1999), and was considered the economic powerhouse of the European Union (EU). Its GDP per capita of US$26,513 in 1999 and its living standards were among the highest in the world.

Recovering from the destruction of World War II, Germany's economy experienced a long period of strong economic growth that has been widely referred to as the "German miracle." During this period of growth, extensive and generous social services and benefits accompanied high-tech market capitalism . A broad cooperation among government, business, and labor complemented free market principles in economic decision-making. Companies were considered responsible not only to shareholders but also to employees, customers, suppliers, and local communities. However, this domestic capitalist model that linked business to a social conscience was challenged during the 1990s with the reunification of East and West Germany—which had been divided since 1949—and the consolidation and globalization of German businesses. The economy acquired more liberal U.S. traits in order to compete with foreign companies. European integration, including liberalization at the state level, the transfer to a single European market, and the adoption of the single European currency, also contributed to a more liberal economic landscape, which meant that market forces played a greater role in determining the shape of the economy while government decisions played a smaller role.

The integration of East Germany and West Germany after the 1989 collapse of the Berlin Wall brought the economy under significant economic strain. East Germany's large government debt and persistent unemployment—the product of years of communist control in that country—forced West Germany to offer an estimated US$100 billion annually to the poorer east German states. During the 1990s the shrinking number of tax-payers and the growing number of retirees, high labor costs, greater foreign competition from emerging markets (such as eastern Asia), and high capital outflows (by German banks and corporations investing abroad) also added to the economic stresses of reunification. The integration of the centrally planned East German economy was difficult, and many regions in western Germany have also been slow in restructuring and closing down obsolete heavy industries. Due to high labor costs and the country's image as an over-regulated economy, foreign direct investment in Germany was rather weak through the 1990s. The financial meltdowns in Asia, Russia, Mexico, Brazil and other emerging markets in the late 1990s also afflicted the economy, which was highly dependent on the export of manufactured, particularly capital, goods (machinery and equipment).

The government has pursued economic and social policies, such as budget cuts, tax cuts, and structural reform to encourage growth in foreign and domestic investment and job creation. In 1999 the Future Program 2000 was adopted, calling for a DM30 billion federal budget cut in 2000; radical business, family, and energy tax reforms; and a reform of the mandatory old age pension and health-care system. The government launched the Alliance for Jobs campaign with labor and business to discuss wage policies, making early retirement options more attractive for small and medium-sized firms, providing more work time flexibility, more trainee positions, and cutting overtime work. The government is working to increase the labor market flexibility (the readiness of workers to relocate to areas and industries with better growth perspectives) and to increase international competitiveness by reducing the costs of operating German businesses (by tax cuts and other measures).

POLITICS, GOVERNMENT, AND TAXATION

Following its military defeat in World War II, Germany was occupied and divided into the Federal Republic of Germany (West Germany) under western influence, and the German Democratic Republic (East Germany) within the communist bloc. On the wake of the democratic reforms in the Soviet Union initiated by President Mikhail Gorbachev in the 1980s, and the collapse of communism in eastern Europe, the German countries were reunited on October 3, 1990. The political system is based on the Basic Law (Grundgesetz, or constitution) of 1949. The country is a democratic federation of 16 states (Länder) with their own governments and local traditions. Each state has an elected legislature and government whose responsibilities include local affairs such as education and keeping a police force. The federal legislative power is vested in a bicameral Federal Assembly or parliament comprising the Bundestag (lower house), with 662 members (328 elected from local constituencies and 334 elected through party lists in each state for a 4-year term), and the Bundesrat (upper house) comprised of 69 members nominated by the 16 states. Each state has between 3 and 6 votes in the Bundesrat, depending on its population, and these are required to vote as a block. The role of the Bundesrat is limited, but it can veto or initiate revision of legislation passed in the Bundestag when it would affect the interests of the states. Parliamentary elections in September of 1998 brought to office the cabinet of Chancellor Gerhard Schröder of the Social Democratic Party of Germany (SPD), and elections were scheduled for 2002. The head of state is the president (a role that is largely ceremonial), elected for a maximum of 2 5-year terms by an electoral college consisting of members of the Bundestag and representatives of the state legislatures. The president in 2001 was Johannes Rau, who took office in 1999, and presidential elections were scheduled for May 2004. The federal executive power is vested in the federal government led by the chancellor (prime minister), elected by the Bundestag on the nomination of the president.

Major political parties represented in parliament in 2001 included the Socialist Party (SPD) and the environmentalist, pacifist Alliance 90/the Greens; the conservative Christian Democratic Union (CDU) and the Christian Social Union (CSU); the Free Democratic Party (FDP); and the Party of Democratic Socialism (PDS). In early 2001 the SPD (supporting social welfare) had 298 seats. The CDU and its Bavarian sister party the CSU (or CDU/CSU) had 245 seats in the Bundestag. CDU/CSU was a major party that kept office for 16 years under Chancellor Helmut Kohl until 1998. It is generally conservative on economic and social policy but was plagued by corruption scandals in the 1990s. The Alliance 90/The Greens (Buendnis 90/Die Gruenen), with 47 seats, was a junior partner in the federal coalition government. The Free Democratic Party (FDP), with a relatively market-oriented, civil libertarian platform, had 43 seats in the Bundestag and was a traditional coalition partner of the CDU/CSU. The Party of Democratic Socialism (PDS), the successor party to the Communist Party of the former East Germany, had 36 seats, maintaining its political base in the poorer eastern states.

The center-left coalition government that took office in 1998 hoped to stimulate economic growth and control the rising government debt. Total German government debt stood at DM1,500 billion, or 61 percent of the GDP in 1998, and federal debt service obligations reached 25 percent of federal revenues. Reducing unemployment and fostering the development of eastern Germany were also high priorities. The government worked to enhance German competitiveness by implementing tax cuts, budget spending restraints, growth incentives, and structural reforms. Pension reforms were aimed at limiting the financial pressure on the public social security system and encouraging citizens to open extra privately funded retirement accounts. Fiscal consolidation and pension reforms were expected to reduce the government debt and to allow further tax reforms, thus cutting corporate income taxes and reducing personal income taxes while broadening the tax base. Tax cuts were designed to provide incentives to growth, by allowing corporations to invest more easily in high technology and by supporting an increase in the export of products through a reduction in the overall tax costs of production.

By 2000 the government had implemented significant tax cuts for low-income taxpayers, a modest tax relief for businesses, and higher energy taxes in return for lower labor costs. In 1999 the corporate tax rate for local companies on profits distributed to stockholders was 30 percent and on undistributed profits it was 45 percent, but under the tax reform this split rate was reduced to a single flat rate of 25 percent applicable also to foreign companies that were once subject to a 42 percent corporate tax on total profits. Additional local taxes still pushed the total rate of taxation for individuals and companies up to around 50 percent. A value-added tax (VAT) applied to all sales and services, at a rate of 16 percent or at a reduced rate of 7 percent. In addition to the VAT, there were numerous excise and other taxes, mainly at the state and municipal levels, including tobacco, gasoline, oil and heating oil, alcohol, stamp duties , and lottery taxes. The government decided to tax energy consumption after 1 April 1999 by a levy on the use of gas, oil and electricity; and after 1 January 2000 further tax increases on energy consumption were implemented.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

Germany has one of the world's most developed transportation and communication infrastructures. Intensive investment since reunification in 1990 has brought the undeveloped eastern Germany in line with that of western Germany. Transport and communications utilities in Germany have been liberalized following EU requirements. A dense and efficient network of motorways, railways, and waterways connects the country with major

centers and the world. In 2000 the total length of paved highways was 650,891 kilometers (404,444 miles), including 11,400 kilometers (7,083 miles) of express-ways. More than 45 million motor vehicles were on the road, causing high road usage and frequent traffic jams, but the lack of speed limits on highways helped alleviate traffic problems. However, many Germans preferred to use the extensive public transport system, or bicycles, instead of motor vehicles. In 1998 the total length of railroads was 40,826 kilometers (25,368 miles) including at least 14,253 kilometers (8,856 miles) of electrified and 14,768 kilometers (9,176 miles) of double-or multiple-tracked railroads. The national railroad carrier, Deutsche Bahn AG (DBAG), was privatized in 1994 but still required government subsidies.

Germany's flagship air carrier, Lufthansa, is among the world leaders in the airline industry. According to EU requirements, Lufthansa is majority owned by EU governments, while the German government has relinquished its holding in it, and the state of Bavaria has reduced its stake in the company. Since the liberalization of air transportation in the European Union in 1997, Lufthansa has fought to retain its dominant position on Germany's internal routes. In 1998 a total of 127 million passengers were carried by commercial air services in Germany. There are 320 airports, including 14 with runways over 3,047 meters (1.89 miles), with 673,300 aircraft departures registered in 1998. The busiest airport, in terms of aircraft movements, passenger departures, and freight traffic is the Rhein-Main airport outside Frankfurt am Main. Munich is the second busiest in terms of passenger traffic and Cologne-Bonn is the second busiest in terms of freight traffic. The other major passenger airports are Berlin-Tegel, Dusseldorf, and Hamburg. The federal government and cities such as Berlin and Cologne are preparing to sell their shares in major airports.

Marine transport is also developed, with major ports on the Baltic Sea, including Kiel, Rostock, and Luebeck, and on the North Sea, including Emden, Hamburg, Bremen, and Bremerhaven. Major rivers ports are at Duisburg, Cologne, Bonn, Mannheim, and Karlsruhe on the Rhine; Magdeburg and Dresden on the Elbe; and Kiel on the Kiel Canal which provides an important connection between the Baltic and North Sea. The most important port for Germany, however, is Rotterdam in the Netherlands. Hamburg is by far the largest port city in Germany, accounting for about 33 percent of all the freight. In 1998 the merchant fleet totaled 8.01 million gross registered tons, and freight traffic shipped through German ports that year totaled 210 million tons. Historically, industrial centers have grown closer to ports due to the supply of cheaper raw materials and coal. In recent decades, refinery and chemical industries have gravitated towards the 1,550 miles-long network of oil pipelines. Fuel transport by pipeline in Germany rose from 74.1 million tons in 1990 to 90.7 million tons in 1998.

The country imports most of its energy sources, including almost all of its oil. In the 1970s and 1980s it worked to reduce its dependence on imported oil by developing nuclear power and encouraging energy efficiency. In the 1990s, environmental considerations, including global warming, became a serious concern, and in 2000 a program of gradual withdrawal from nuclear power was agreed on by the SPD-Green government and electricity producers. In early 2001, a shipment of nuclear waste from France to Germany sparked massive environmental protests in the country, causing many injuries and hundreds of arrests. A total of 19 nuclear plants accounted for about 40 percent of Germany's electricity consumption in 2000. In 1998 the country produced 525.356 billion kilowatt hours of electricity and fossil fuel (coal-lignite, coal-anthracite, and natural gas) accounted for the largest portion while hydroelectricity contributed only 3.2 percent. Like all other industrialized economies, Germany has become increasingly cautious about energy consumption.

Prior to 1997 the electric sector was divided into 9 regional monopolies , with exclusive rights over transmission facilities within their areas. At the local level, there were hundreds of municipally controlled power distributors. City and state governments had direct financial interests in the electric sector through concession agreements and in many cases ownership of local and regional distribution organizations. Between the regional monopolies and the local distributors were about 70 middle-level distributors of electricity. Although electricity prices in Germany used to be among the highest in the European Union, they fell dramatically after the Electricity Supply Law entered into force in 1997. This law implemented the EU power market liberalization directive and went beyond its requirements to create a thorough electric market liberalization in western Germany. By 1999 electricity tariffs for large users fell by up to 30 percent. The local and regional monopolies were broken by permitting third-party access for both commercial and residential customers. In addition, national utilities were allowed to buy from competing power producers, and electricity purchasing pools were created. The industry has undergone deep and rapid restructuring as large regional power generators have merged and sought the integration of production and distribution by purchasing some of 900 local power distributors. The federal government participates, often as a minority shareholder, in local energy utilities and is represented on the boards of supervisory authorities.

Germany is among the world's leaders in telecommunications, served by a modern telephone system and 46.5 million main lines connected by fiber-optic cable, coaxial cable, microwave radio relay, and a domestic satellite system. The state-owned giant, Deutsche Telekom (DT), one of the leaders of the European and global telecommunications sector, became a joint-stock company in 1989, but it was not until January 1998 that it ended its monopoly in fixed lines under EU law. DT was also partially privatized: 28 percent of the company was sold in the financial markets in 1996, 25 percent was sold in 2000, and the remaining shares owned by the German government were scheduled for future sale. Liberalization brought a variety of new service providers with varying prices for services. In the first year after liberalization, DT lost 30 percent of its peak-time long-distance-call business and introduced price cuts of 60 percent in January 1999. Competition from the nearly 200 new telecommunications companies and about 1,300 companies in non-licensed sectors has fueled arguments over network access charges and rates. Growth in the areas of multimedia, mobile communications, and the Internet has also been spectacular. Germany is one of the fastest growing markets for mobile phone equipment, and Germans owned 15.318 million mobile phones in 1999. The government is considering further investments into the area because it still compares poorly with the United States by the ratio of personal computers and Internet hosts per 1,000 people.

ECONOMIC SECTORS

Germany's economic structure is typical of highly industrialized economies that often have a very strong services sector. In 1999 about 68.4 percent of the GDP was contributed by services, 30.4 percent by industry, and 1.2 percent by agriculture, forestry, fishing, and hunting. Approximately 63.6 percent of the country's work-force was employed in services, 33.7 percent in industry, and 2.7 percent in agriculture. The largest industries in terms of employment in 1998 were manufacturing and mining with 8.65 million employees, miscellaneous public and private services with 7.44 million, trade and tourism with 6.28 million, and public administration with 3.2 million. Other major employers were construction, business services and real estate, and transport and communications. Manufacturing has traditionally been the powerhouse of the economy, but its importance has declined significantly over the last third of the 20th century as a result of structural change. Manufacturing's share of the gross value added to the economic sector fell from 51.7 percent in 1970 to 32.8 percent in 1997. In the same period, the service sector increased its share markedly. Private services accounted for 37.3 percent of the gross value added in 1997, while commerce and transport accounted for 14.6 percent. Rapidly expanding branches, like information technology, communications, and the aerospace industry, have failed to compensate for the decline of traditional branches, such as textiles and steel, and the services sector has been unable to achieve high growth rates given that basic needs of the population are generally satisfied.

AGRICULTURE

Agriculture is important for the country's food security and also a provider of jobs. It produces about DM84 billion worth of goods annually and purchases goods for around DM52 billion. Over 80 percent of Germany's land is used for agriculture and forestry. Like other sectors of the economy, it has undergone profound structural changes in the second half of the 20th century. In the western states, the number of farms decreased dramatically between 1949 and 1997 as machines gradually replaced human workers, and productivity increased. In 1950 1 farm worker produced food for 10 people; by 1996 1 farm worker produced food for 108 people. Attracted by a better income, many farmers left agriculture for the industrial and service sectors. Family farms predominate in Germany's old western states, and in 1997, 87 percent of all farmers in western Germany worked on fewer than 124 acres. Individual farm enterprises have also gained ground in the east: in 1997 they accounted for 80 percent of agricultural output from the eastern states, while working on only slightly more than 20 percent of the agricultural land available in the east.

Chief agricultural products include milk, pork, beef, poultry, cereals, potatoes, wheat, barley, cabbages, and sugar beets. In some regions wine, fruits, and vegetables, and other horticultural products play an important role. Agricultural products vary from region to region. In the flat terrain of northern Germany and especially in the eastern portions, cereals and sugar beets are grown. Elsewhere, on more hilly terrain, and even on mountainous land, farmers produce vegetables, milk, pork, or beef. Fruit orchards and vegetable farms surround almost all large cities. River valleys in southern and western Germany along the Rhine and the Main, are covered with vineyards. German beer is world-renowned and is produced mainly, but not exclusively, in Bavaria. Germany has a high level of exports of farm products: in 1997, its exports had a total worth of DM42 billion. Agricultural imports amounted to DM72 billion, making Germany the world's largest importer of farm products.

Important areas of German agricultural policy have transferred to the European Union, particularly in market and price policy, foreign trade policy, and structural policy. EU agricultural reforms in 1992 cut market price supports, replacing artificial prices with government subsidies, and put stricter controls on output volume. Through the reduction of price supports and through additional measures, the reforms promoted more effective farming methods and more ecologically safe agricultural production. The federal and state governments, in their turn, provided financial assistance for agricultural development, land consolidation, village renewal, and construction of country roads. Special funds were available for disadvantaged areas where agriculture was an important economic and social factor. The government's requirements of good agricultural practice required that fertilization and plant protection did not exceed an established maximum, and farmers who used environmentally friendly farming methods received financial compensation in recognition of their environmental policy.

FORESTRY AND FISHING.

Almost a third of Germany's total area is covered by forest and although the country has been traditionally a net importer of wood and wood products, it is a significant exporter as well. In 1994 it ranked second after the United States in imports of paper, cardboard, and goods made thereof, and first ahead of Canada, the United States, and Finland in exports. Germany's fishing policy is carried out within the European Community's Common Fisheries Policy (CFP), which is based on the principle of relative stability achieved by established quotas for member states and on exercising control over fish stocks by fixing annual total catch limits.

INDUSTRY

Manufacturing in Germany holds a declining share of the total GDP and jobs, but it remains the backbone of the economy and is highly competitive internationally. German scientific and engineering achievements fueled its phenomenal industrial growth during the 19th and 20th centuries as the country became the birthplace of television, modern airplanes, and the automobile. The creation of the gasoline motor by Gottlieb Daimler was complimented by Rudolf Diesel's invention of the engine bearing his name. From 1901 to 1930 Germans received a total of 26 Nobel prizes in physics, chemistry, and medicine. Large companies, based on the German ingenuity of the past centuries, account for just fewer than 40 percent of the industry's total revenue, while small and medium-sized companies form the vast majority of firms in the industrial sector, supplying the larger companies with parts and supplies. Many of the large German firms are known throughout the world and have branches or research facilities overseas, including the car makers, Daimler Chrysler, Volkswagen, and BMW; the chemical corporations, Hoechst, Bayer, and BASF; the energy giants, VEBA and RWE; and the machinery and equipment manufacturers, Mannesmann, Siemens, and Bosch. The ownership structure in manufacturing is predominantly private, although the federal and especially the state governments hold equity in a range of companies. The federal government has pursued privatization plans since the early 1980s.

MINING.

Germany has a distinguished mining tradition, but the industry has taken a minor role in the 1990s and is not able to meet the country's growing needs for energy and raw materials. The chief mining products are brown coal, or lignite, with total reserves at about 43 billion tons, and 24 billion tons of hard coal, or anthracite. Lignite, inexpensive in Germany, is a principal domestic source of energy covering about 26 percent of the electricity production. The country is the world's largest lignite producer, with about 20 percent of global output. Hard coal production, on the other hand, has fallen despite subsidies. In 1950 hard coal accounted for 73 percent of the primary energy consumption in West Germany, but by 1997 its share had fallen to 14.1 percent. Germany imported 12 percent of its coal in 1998, mostly from Poland, followed by Australia, South Africa, and Colombia, and imports were expected to double by 2020, as nuclear power is phased out and hard coal domestic production is further reduced. Oil and natural gas production is mostly limited to the North German Plain and the North Sea, making Germany the third largest oil importer in the world, with primary suppliers Russia, Norway, Libya, and the United Kingdom. Natural gas is imported from Russia, the Netherlands, and Norway.

MANUFACTURING.

The German manufacturing sector is large and robust, with leading branches in chemical products and pharmaceuticals, vehicles and transport equipment, metals and metal products, electrical machinery, precision instruments, paper products, and processed foods. Other products include cement and construction materials, optics, electronics, ships, and textiles. In the eastern states, chief manufacturing sectors are electrical engineering and electronics, chemicals, vehicles, glass, and ceramics. The former state-owned companies in eastern Germany, although receiving significant investments from the west after reunification, are generally more unstable, and it is unclear which of them are to survive. Large portions of the old Communist manufacturing industries in the east have been shut down since unification.

MOTOR VEHICLES.

Germany is the world's third largest automobile maker after the United States and Japan, and with nearly 730,000 employees and annual revenue of almost DM340 billion in 1999, the automobile industry is a crucial economic player. The industry provides markets for many related industries like machine tools, spare parts, tires, plastics and paints, and metal processing. With all suppliers, automotive services and retailers included, a total of about 5 million workers in the country depend on the health of the automobile industry for their livelihoods. Due to the increasing automation of production and the refocusing of manufacturers on core activities, the distribution of value between manufacturers, direct suppliers, pre-suppliers, and distributors is changing, but as a whole, in 1998, the percentage of gross domestic product related to the development, manufacture, sale and use of motor vehicles amounted to almost 20 percent. Car makers, such as Daimler Chrysler, Volkswagen, Audi, and BMW, are well known throughout the world. In 2000, Daimler Chrysler, with its revenue of 162.4 billion euros, was the second largest company in the world. Of the 5.309 million vehicles manufactured in 1999, 64.6 percent were exported mainly to other EU members and to North America, and German companies also produced 3.55 million vehicles in their foreign operations. Manufacturers from western Germany have opened new plants in the eastern states and invested nearly DM7 billion with the purpose to produce 370,000 cars a year. The German automotive industry has traditionally attracted significant foreign direct investments. The car maker Opel was acquired by General Motors of the United States before World War II, and after the war Ford and other industry leaders opened operations in the country.

MACHINERY.

In 1997, Germany accounted for nearly 20 percent of the world's machinery exports (Japan was responsible for 16 percent and the United States for 15.7 percent). In some products, like metallurgical plant equipment, particularly rolling mills, paper and printing machines, and woodworking machinery, German exports amounted to one-third of the world total. With almost 6,500 factories in mechanical engineering, German manufacturers have a reputation for customized machinery of high quality. Among the important products are machine tools, including manufacturing systems, power transmission engineering, air handling, refrigeration, air pollution control, vacuum and compressor equipment, and food processing and packaging technology. Only about 5.5 percent of the factories have more than 500 employees and these are the producers of large, complex machines. Some large, well known machinery manufacturers include Mannesmann Demag, a producer of plant engineering and machine tools with a total of 55,000 employees; Heidelberger Druckmaschinen, a maker of printing and paper machinery with 17,000 workers; the Bosch group, a manufacturer of packaging machines and automation technology with 7,000 employees in its machinery division; and Gildemeister, a producer of sophisticated machine tools with 2,300 employees (all figures from 1997). Over 80 percent of the companies in mechanical engineering, however, are highly specialized small-or medium-sized firms with fewer than 200 employees. In 1997 they had a workforce of 881,000 and combined revenues of DM210 billion, almost two-thirds of which were generated by exports. The German aerospace industry, which employed about 61,000 and generated a revenue of about DM21 billion by 1997, led major European technology cooperation projects, such as Airbus and Ariane.

CHEMICALS.

In 1996 Germany was the largest exporter of chemical products in the world, with a share of 15.5 percent (the United States accounted for 14.4 percent and Japan for 7.5 percent). Its chemical industry, with its state-of-the-art technology, innovative products, and emphasis on research, was represented by corporate giants such as BASF, Bayer, and Hoechst, and by a multitude of small and medium-sized firms. In 1998 the industry employed 484,000 people, including 31,000 in the eastern states and generated sales of DM187 billion, while research and development expenditures reached DM11.3 billion. Nearly two-thirds of the industry output was exported, amounting to DM123.6 billion in foreign receipts. International networks of subsidiaries and branches characterized the large chemical companies, active in all major world regions. In the 1980s and 1990s, the chemical industry of western Germany underwent substantial restructuring processes and a reduction of its labor force by 45,000 people between 1991 and 1994, eliminating excess capacity and restructuring the geographical distribution of their production facilities under changing market conditions, growing international competition, new EU health and environmental regulations, and a shift in demand to environmentally friendly products.

ELECTRONICS.

The electrical engineering and electronics industry, with revenue of DM242 billion and nearly 850,000 employees (1997), is also among the most research-intensive and innovative manufacturing sectors, including makers of production plant electronics, telecommunication systems, electronic components, programmable controllers, medical systems for diagnosis and therapy, household appliances, and others. The sector is dominated by a small number of large firms such as Siemens, Bosch, and IBM Germany. With annual sales of 78 billion euros in 2000 operations in 190 countries, Siemens employed 197,000 workers in Germany, and 203,000 workers abroad. Precision engineering, optical and process control technology, electromedical equipment, and timepieces generated DM52.4 billion in sales 1997, and nearly 2,000 primarily small and medium-sized firms in these industries employed more than 219,000 workers.

OTHER INDUSTRY.

In 1999 Germany was the world's fifth largest producer of steel (after the United States, China, Japan, and Russia) with total production of 42.1 million metric tons, down from 44.0 million tons in 1998. With a workforce of about 830,000, the metal-producing and metal-processing industry generated sales of DM230 billion in 1997. Revenue of DM225.7 billion was reported in 1997 by the food processing industry with a labor force of 503,000. Germany has one of the highest per capita consumption rates of beer in the world and is a major producer of fine dairy products and meat delicacies. Textiles, clothing, and leather goods, some the oldest domestic industries, still play a significant role, employing 245,000 and generating a revenue of DM63 billion in 1997, but most important textile regions lost their significance during the 1980s and 1990s. With 775,000 employees and revenues of DM151 billion in 1999, construction was another important branch of German industry, and the country was considered to be Europe's largest construction market with the relocation of the federal capital from Bonn to Berlin and the eastern states' renovation following the reunification in 1990.

SERVICES

TOURISM.

Although Germany is an attractive tourist destination and foreign visitors spent DM31 billion in 1999, it has a large deficit in the tourism balance of payments . Germans normally enjoy a 30-day paid vacation and many of them travel abroad, spending a total of DM88 billion in 1999 and bringing the negative travel balance to DM57 billion. Yet tourism is an important economic factor as approximately 2.4 million people (including part-time and seasonal help) were employed in the industry and immediately related areas such as travel, restaurants, lodging, relaxation and enjoyment, in 2000. Foreign visitors stay on average between 2 and 3 days, combining a visit to Germany with visits to neighboring countries. Approximately 11.7 million foreign guests visited Germany and about 287 million overnight stays were registered in 1997, including a total of 33.4 million overnight stays by foreign guests. About 15.2 percent of visitors came from the Netherlands, 10.9 percent from the United States, 8.9 percent from Britain, and 5.6 percent from Italy.

RETAIL.

Retail has undergone profound structural changes over the second half of the 20th century, caused by changing consumer behavior and supply chains. Motorization and more economical bulk-buying have favored the spread of hypermarkets, self-service department stores, and discount stores, and many small retailers have gone out of business. Competition has become harder, profit margins have declined, and the retail food and beverage market is increasingly dominated by a small number of large retailers like REWE, Edeka/AVA, Aldi, Metro, Tengelmann, Spar, Karstadt, Kaufhof and Kaufhalle. The 10 largest retailers accounted in 1999 for over 80 percent of the market, up from about 56 percent in 1990. Internationalization of retail is progressing as more German firms develop operations abroad and foreign competitors like Wal Mart or the French Intermarché group enter the domestic market. Mail-order firms actively benefitted from postal services liberalization and the growth of e-commerce . Due to strong competition, prices are low, the product range is wide, and the leisure component of shopping has increased constantly over the 1990s. A boom of new retail facilities has followed the shortage of retail space in East Germany after unification in 1990.

In 1997 retail turnover represented 34.3 percent of private consumption, totaling DM715 billion, and the industry employed nearly 2.7 million people (over 45 percent of them part-time, 33 percent of the total in food, beverages, and tobacco). Additionally, 60,000 commercial agents and brokers and 55,000 motor vehicle dealerships and filling stations employed nearly 700,000 workers. A total of 294,000 firms operated in the market, most of them small: 74 percent had fewer than 5 employees, and only 2,925 enterprises had more than 50 workers. Small and medium-sized retailers have found ways to compete with large ones by catering to individual tastes, specializing in certain types of products, and offering expert advice and personalized service, and have also increasingly cooperated in purchasing, sales, and marketing.

FINANCE.

No sector of the economy has grown as financial services have done over the 1990s. The turnover of the German banks has risen from DM4 trillion in 1988 to DM9.1 trillion in 1997. Savings deposits, stock and security holdings, loans, and cashless payments have all grown. Banking in Germany has traditionally been characterized by the large amount of long-term credit provided to industry and local government and by the regional or local focus of many credit institutions. In the 1990s, however, the industry was looking to foreign markets and turning to the stock exchange.

German banking is represented by private commercial banks, cooperative banks, and Sparkassen (savings banks) organized regionally and supervised and coordinated by the Landesbanken (state banks). Over half of all savings accounts are in the hands of the 563 Sparkassen, usually held by municipalities, and nearly one-third are in the about 1,800 cooperative banks. Germany's second largest fund manager, DekaBank, is owned by the Sparkassen, and the third largest one, Union Investment, by the cooperatives. As of early 2001, there were 340 commercial banks, 13 regional giro institutions, 596 savings banks, the Deutsche Genossenschaftsbank, the central institution of the cooperative Volksbanken and Raiffeisenbanken, as well as 3 regional institutions of credit cooperatives, 2,411 credit cooperatives, the Deutsche Postbank AG, 33 private and public mortgage banks, 18 credit institutions with special functions, and 34 building and loan associations. Nearly every employee in the 1990s had a salary account and more than 40 million had a Eurocheque card and used this international payment system. Credit cards have also grown in popularity: in 1980, roughly 580,000 people were using them, and in early 2001, the number was 15 million. Since 1980 it has been possible to get cash from automated teller machines (ATM), and the electronic cash system was introduced in 1990 and by 2000 was used at more than 140,000 terminals, especially in retail stores and gas stations.

Germany has 3 large commercial banks which dominated the market after World War II: Deutsche Bank, Dresdner Bank, and Commerzbank. The merger of Bayerische Vereinsbank and Bayerische Hypotheken und Wechsel Bank (Hypobank) in the late 1990s created Bayerische Hypo und Vereinsbank (BHV), which was second in size only to Deutsche Bank. In April 2000 negotiations on the proposed merger of Deutsche Bank and Dresdner Bank were suspended due to EU banking regulations and antitrust laws. Deutsche Bank and the other nationwide banks had powerful positions on the boards of some of the largest industrial and commercial companies and were estimated to own 10 percent of total shareholdings in the country. Their role as shareholders came under EU criticism in the 1990s, and banks were expected to divest themselves of many holdings. In late 1998, both Deutsche Bank and Dresdner Bank announced that they would cut their equity holdings, and Deutsche Bank shifted DM40 billion of assets into a separate company. In their move into investment banking the Landesbanken also attracted criticism from private commercial banks, resulting in investigations by the EU competition authorities into the allegedly privileged status of the Landesbanken. During the 1980s and 1990s, growing competition, declining profit margins, and pressures from shareholders to raise profitability have intensified, and banks have expanded into capital market activities in Germany and into investment and other banking activities abroad. Through Allfinanz (offering insurance, asset management, and banking activities at once), large banks have achieved minority participation in large insurance companies, while some insurers have taken over banks. In early 2001, Allianz, a giant insurer, acquired Dresdner Bank, of which it already owned more than 20 percent, creating Germany's largest company.

INTERNATIONAL TRADE

The German economy is heavily export-oriented and needs imported goods, mostly fuels and raw materials, so

with a foreign trade turnover at 48.5 percent of the GDP in 1999 (the world's second largest after the United States) international trade has traditionally played a crucial role. Germany accounted for 9.6 percent of the total world trade in 1999, and its policy of liberalization is consistent with its strong international competitiveness demonstrated by its foreign trade surplus of US$70.1 billion (or 3.3 percent of the GDP) in 1999. As in other major trading nations, Germany's jobs, investments, profits and standards of living have been seriously affected by disruptions of world trade and changes in the global economy.

The country's most important trading partners are the European Union and the United States. In 1999, they accounted together for 67.4 percent of exports and 61.6 percent of imports. EU integration has greatly intensified intra-European trade, and in 1999 the European Union accounted for 57.2 percent of Germany's exports and 53.4 percent of its imports. Germany's most important trading partner continues to be France, and the United States has become both the second largest market for German products, spending DM100.8 billion, and supplier of goods to Germany worth of DM71.2 billion in 1999. Other major markets for Germany are Great Britain (8.4 percent of exports), Italy (7.4 percent), the Netherlands (6.5 percent), Belgium and Luxembourg (5.5 percent), Austria (5.3 percent), Switzerland (4.5 percent), Spain (4.4 percent), and Poland (2.4 percent). After France and United States, major suppliers to Germany are the Netherlands (7.9 percent of imports), Italy (7.3 percent), Great Britain (6.8 percent), Belgium and Luxembourg (5.2 percent), Japan (4.8 percent), Austria (4.0 percent), Switzerland (3.9 percent), and Spain (3.2 percent). About 13 percent of the trade volume is exchanged with the Asia-Pacific region, and Germany's largest trade imbalance for decades has been with Japan. Germany's main exports in 1997 were motor vehicles (DM159.1 billion), machinery (DM149.3 billion), chemical products (DM130.8 billion), and electrical engineering products (DM110.3 billion). Its most important imports were raw materials and energy (25 percent), chemical products (13 percent), consumer goods (13 percent), electronic goods (12 percent), and motor vehicles (11 percent).

MONEY

Germany has a stable and powerful financial system, and the value of the deutsche mark has been steadily growing since the 1950s. The exchange rate of the deutsche mark to the U.S. dollar fell from DM4.21 in 1955 to DM2.15 in 2001 (the lowest price for US$1 was reached in 1992-1995 at DM1.43). The currencies that gained against the deutsche mark after 1950 were Japan's yen and the Swiss franc. Since 1 January 1999, in accordance with provisions of the EU Maastricht Treaty, the European Monetary Union (EMU) was established and the Deutsche Bundesbank (the central bank) became an integral part of the European System of Central Banks consisting of the European Central Bank (ECB) and the central banks of the 11 EMU member states. The euro became the currency unit but was initially used in electronic transfers and for accounting purposes only. The deutsche mark remained as legal tender until the end of the year 2001, and in 2002 the new euro will replace it completely. On 1 January 1999 the exchange rate of the euro was fixed at DM1.9558. Monetary policy was also transferred to the ECB, its primary objective being to ensure price stability. In 2001 the most important function of the Bundesbank was to ensure the implementation of ECB monetary policy, including banking supervision and management of national monetary reserves, acting as the house bank of the federal government, overseeing payment transactions in Germany, and controlling the issue of euro notes.

In 1997 stock exchanges in Germany reached a turnover of DM8.97 trillion, 60 percent of which related to fixed interest securities (bonds) and the rest to shares. Trading was conducted on 8 exchanges (in Berlin, Bremen, Düsseldorf, Frankfurt am Main, Hamburg, Hanover, Munich, and Stuttgart), yet the Frankfurt exchange was

the largest and ranked fourth internationally (after New York, Tokyo, and London). In 1992 the Deutsche Börse AG was founded in Frankfurt am Main as a holding company for the Frankfurter Wertpapierbörse (Frankfurt Securities Exchange), the German part of the German-Swiss futures exchange Eurex, and the Deutsche Börse Clearing AG, responsible for securities settlement and custody. Frankfurt is also the host of many local and foreign credit institutions, including major banks and brokerages.

POVERTY AND WEALTH

After World War II Germany developed a social structure comprised predominantly of a large and prosperous middle class (about 60 percent of the population), including mid-level civil servants, most salaried employees, skilled blue-collar workers, and a shrinking number of farmers. A smaller, wealthier group is made up of the upper-middle class and the upper class; and the poorer class is made of unskilled white and blue-collar workers, and unemployed and socially disadvantaged people. Unskilled blue-collar workers perform the poorest paid and dirtiest tasks. Foreigners account for about 25 percent of this group, and German women form about 38 percent of unskilled blue-collar workers. In 1992 approximately 7.5 percent of the population in the western states and 14.8 percent in the eastern states were poor (with income less than half the national average). From

1960 to 1994, the disposable income of private households in the western part of the country increased 10 times, from DM188 billion to over DM1,867 billion, and in 1997 the disposable income of private households in the whole of Germany reached about DM2,355 billion. In 1997, a 4-member household in the western part of Germany disposed of about DM5,725 per month, of which DM4,293 was spent on private consumption, and only about 57 percent had to be spent on food, clothing, and housing. Spending on leisure, automobiles, education, and telephones rose markedly. In 1997, about 53 percent of the private households in the west and 30 percent in the east owned real estate.

Although living standards in the eastern states and among many foreign workers are considerably lower than among most western Germans, there are no extreme forms of poverty, and extensive social programs relieve to a large extent the economic condition of the poor. In 1992 there were 4.6 million recipients of social assistance, nearly 700,000 from the east. Households with 3 or more children, and single parents were the most likely recipients of social assistance. In terms of education, average income, and property ownership, Germany ranks among the world's leaders. In 1963, at the height of the so-called economic miracle following World War II,

social spending excluding education was 17.8 percent of the GDP in West Germany, compared with 13.8 percent in Sweden and 11.8 percent in the United Kingdom. Social benefits were further improved in the 1970s. In the 1990s the cost of social protection increased as a result of the aging population, rising structural unemployment, and the high rate of unemployment in the eastern states. German labor costs in the mid-1990s became the highest of most major economies, primarily as a result of high wages and non-wage social costs.

WORKING CONDITIONS

The German workforce numbered 40.5 million in 1999. Strong partnerships between labor, business, and the government after World War II contributed to the construction of a safe and responsible working environment. German companies have been held responsible for a larger array of social and community issues than is normally expected in the United States. The high environmental, health, and safety consciousness of the Germans has greatly contributed to improving general working conditions. German companies are more hierarchical than their U.S. counterparts, and employee relations are often formal. German workers have had the highest level of education in Europe, and as many as 2.5 million Germans, or almost half of the 15-to 19-year-old age group, annually receives vocational training within a range of about 400 occupational specialties, often on the basis of contracts with preselected employers. Combined on-thejob and academic training for apprentices produces many employees with the skills employers need, but the system has not kept up with the number of applicants and some say it needs to be made more flexible and responsive to the changing demands of the economy.

However, the German economy has been traditionally afflicted by a high unemployment rate (averaging a total of 10.5 percent in 1999, with 7.7 percent in western Germany, and 17.3 percent in eastern Germany), and structural unemployment is estimated at 80 percent of the total unemployment. In addition to the economic problems that contributed to high unemployment levels in 1999, the nation-wide collective bargaining system for worker representation produced wage and work time demands that failed to consider differences between regions and companies. The SDP government that took office in 1998 launched an ambitious program to cut unemployment, and more labor flexibility was reached at the company level, especially in eastern Germany. However, the rising number of companies that leave industrial organizations and negotiate contracts and wages at the company level is indicative of the growing discontent with the existing collective bargaining system. In 1998 only 48 percent of western German businesses were covered by a collective bargaining contract and about 25 percent in the east. These western German firms accounted for about 68 percent of total employees and for about 50 percent in the east. Trade union activism, however, has also been on the rise since 1998 to counter these changes in the traditional German economic model. In early 2001 a new union, ver.di, was formed as the world's largest union with 3 million members, comprising the unions of white-collar workers (DAG), the public sector (OTV), banking and retail (HBV), and postal workers and the media (IG Medien), with the purpose to represent labor across the growing service sector.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

1356. Hanseatic League of northern Germany controls all trade on the Baltic Sea and in northern Europe.

1555. The Peace of Augsburg accords Protestants equal rights with those of Catholics.

1612-48. Thirty Years' War between Protestants and Catholics devastates Germany.

1700s. German states of Austria and Prussia abolish serfdom (1781 and 1773, respectively).

1806. Napoleon Bonaparte of France disbands the Holy Roman Empire and occupies Germany.

1833. Prussia organizes a customs union of 18 German states.

1867. Prussia defeats Austria, becoming the undisputed leader of the movement for the unification of the German states.

1871. The German Empire is proclaimed, with a population of over 50 million.

1900s. Germany becomes a major industrial world power and acquires colonies in Africa and the Pacific.

1918. Germany is defeated at the end of World War I (1914-18), a revolution erupts, and the country becomes a democratic republic.

1924. Germany enjoys relative economic prosperity, but millions of workers join the Nazi Party.

1933. During the Great Depression, National Socialist populist leader Adolf Hitler comes to power.

1939. With his attack on Poland, Hitler starts World War II.

1945. Germany surrenders and is divided into 4 occupation zones: British, American, Russian, and French.

1949. The Federal Republic of Germany (West Germany) is created out of the British-, American-, and French-occupied zones of Germany, while the German Democratic Republic (East Germany) is made from the zone occupied by the USSR.

1951. West Germany is accepted into the European Coal and Steel Community and joins the North Atlantic Treaty Organization (NATO).

1961. The Berlin Wall is erected between East and West Berlin.

1968. The European Community is created to organize economic exchanges between European countries.

1970s. West Germany emerges as a leading economic power, along with the United States and Japan.

1990. East and West Germany are unified after Soviet President Mikhail Gorbachev loosens his grip.

1995. Schengen Agreement loosens border controls between Germany and bordering countries.

1998. Germany joins 10 other EU members in adopting the euro as the new single European currency.

1999. The capital of Germany moves from Bonn to Berlin.

FUTURE TRENDS

Germany will continue to be one of the world's leading economies and the powerhouse of the European Union. Its economy will be influenced mostly by European integration, the adoption of the euro, the integration and upgrading of the East German economy, the restructuring of its economic sectors, and its aging population. The ability of the government to cope successfully with these issues may result in a solution to the problems of slow economic growth, high unemployment, high government debt, high tax rates, high unit labor costs, and growing social security and non-wage labor costs. Germany has a special interest in promoting EU enlargement by the accession of eastern European countries but it is also concerned with the possible influx of immigrants and high financial transfers to new EU countries. An important priority of the federal government is fostering the development of eastern Germany, a major burden on the federal budget throughout the 1990s. Germany's responsibility as an influential member of the international community will also grow in areas such as economic assistance for developing countries, environmental protection, and cooperation in combating corruption and transnational organized crime. Future economic stability will also depend on successful European monetary policy and the performance of the other countries within the euro zone and on global economic trends as the German economy becomes more and more international.

While traditional industries such as textiles and steel are declining, growth in the services sector, particularly in finance and high-tech sectors, will be indicative of the economy's development over the first part of the 21st century. Technological advances, notably in the information and communication sectors, will fuel dramatic productivity increases and the further globalization of businesses. The determination to be among the most advanced countries in the application of new technologies forces Germany to expand its already generous investments into that area. Expected new tax reductions will allow German corporations to invest in technologies with higher productivity and to increase exports. Gloomy forecasts of an aging and declining population will foster reforms in Germany's social security system.

DEPENDENCIES

Germany has no territories or colonies.

BIBLIOGRAPHY

Behrend, Hanna, editor. German Unification: The Destruction of an Economy. London, and East Haven, CT: Pluto Press, 1995.

Economist Intelligence Unit. Country Profile: Germany. London: Economist Intelligence Unit, 2001.

Embassy of the Federal Republic of Germany, Washington, D.C. An Overview of the Current Economic Situation in Germany. <http://www.german-embassy.org.uk/facts_-_economics.html>. Accessed April 2001.

Federal Statistical Office Germany. <http://www.statistik-bund.de/e_home.htm>. Accessed January 2001.

Germany Online. <http://www.germany-info.org/sf_index.html>. Accessed September 2001.

Smyser, W. R. The German Economy: Colossus at the Crossroads. New York: St. Martin's Press, 1993.

U.S. Central Intelligence Agency. World Factbook 2000. <http://www.odci.gov/cia/publications/factbook/index.html>. Accessed August 2001.

U.S. Department of State. FY 2000 Country Commercial Guide: Germany. <http://www.state.gov/www/about_state/business/com_guides/index.html>. Accessed April 2001.

—Valentin Hadjiyski

CAPITAL:

Berlin.

MONETARY UNIT:

Deutsche mark (DM). One deutsche mark equals 100 pfennigs. There are coins of 1, 2, 5, 10, and 50 pfennigs and 1, 2, and 5 deutsche marks, and notes of 5, 10, 20, 50, 100, 200, 500, and 1,000 deutsche marks. In January 1999 Germany switched to the new European currency unit, the euro, along with 10 other members of the European Union, as a part of the European Monetary Union (EMU) and the European System of Central Banks (ESCB). The euro was in use after 1 January 1999 for electronic transfers and accounting purposes, while euro coins and bills will be issued in 2002, and at that time the German currency will cease to be legal tender. On 1 January 1999, control over monetary policy, the setting of interest rates, and the regulation of the money supply was transferred from the German Central Bank (Bundesbank) to the European Central Bank (ECB) in Frankfurt am Main.

CHIEF EXPORTS:

Machinery, vehicles, chemicals, metals and manufactures, foodstuffs, textiles.

CHIEF IMPORTS:

Raw materials, machinery, vehicles, chemicals, foodstuffs, textiles, metals.

GROSS DOMESTIC PRODUCT:

US$1.864 trillion (purchasing power parity, 1999 est.).

BALANCE OF TRADE:

Exports: US$549.0 billion (1999). Imports: US$478.9 billion (1999). [The CIA World Factbook lists 1999 exports of US$610 billion and imports of US$586 billion.]