The Political Economy of Germany

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Overview of the political economy of Germany

According to Organization for Economic Cooperation and Development, Germany is one of the strongest economies among the countries that form the European Union (16). During the last quarter of the year 2011, the real gross domestic product of Germany stood at $ 3.479 trillion (Global Finance 1).

This denotes positive economic development. The country was affected by the global financial crisis (Janning 1), which resulted in a fall of GDP growth of the country by 5.1%. The fall in the GDP of Germany during the crisis was attributed to the position that it occupied in EU trade.

Being an exporter of numerous technological goods and machineries across the European Union, the country had a low return from trade. The trading environment in Europe shrank because of the decreased financial sector in most of the European countries. The economic strength of Germany has been enhanced by the reunification of East and West Germany. Germany has an active political landscape (Lange 2).

The political landscape of Germany is marked by rational politics. The country has a federal government which is led by a Chancellor. The country is subdivided into different regions. The current head of the federal government is Chancellor Angela Merkel. Germany is headed by a coalition government which is composed of three parties; they include the Christian Democratic Union, Christian Social Union and the Free Democratic Party (Schwarzer 3).

Economic policy areas of Germany in relation to the European Union

Germany is amongst the strongest supporters of the European Union. The country has exhibited support for economic integration of Europe through the European Union. To that effect, the country has pursued many policies in regard to its incorporation into the European Union. Germany highly advocates for economic integration of the European Union because of the benefits that accrue to the functioning of the union.

The economy of Germany is highly supported by exports. A third of the national output of Germany emanates from exports. The EU presents many export opportunities to Germany. Current policies of Germany on European Union integration began in the early years of the 1990s. This is the time when the country began seeking for real economic identity in Europe. The European Union was uncovered as the main tool that would help Germany to keep pursuing its economic goals (Janning 2).

The fiscal policy in relation to the global economic crisis

The current government of Germany is pursuing numerous economic policies. The fist economic policy that is being pursued concerns the elimination the budgetary deficit in the coming years. Deficits in the budget of a country are argued to have been aggravated by the financial problems in the European Union (Schettkat and Langkau 10).

The government has focused on bringing together all the public finances so as to raise enough capital to bail the country from the crisis in order to improve the trading environment in the country, and the attainment of favorable figures in the balance of payments. The balance of payments is often depended on the rate at which a country participates and gains from exportation of products. As the country focuses on raising revenue generation, it must also assess the performance of the European Union.

The reason for this is that the EU forms the immediate foreign market that comes with many economic benefits to Germany. The benefits accrue to the level of integration that has been attained in the EU. Internal economic policies in highly economically integrated regions are often affected by forces from the Union (Schwarzer 2).

The common agriculture policy of the European Union – impacts on the economy of Germany

The European Union has what is known as a Common Agricultural Policy. The policy seeks to protect farmers in all countries forming the union. Farmers in Germany and other European Union countries are efficient. However, there are a number of factors that limit the farmers. They hinder them from competing effectively in the international market.

These factors include input, land and cost of fuel. Through CAP, extra funds are provided to farmers in order to help them subsidize the high costs of production. Tariffs and quotas are imposed on agriculture products that are imported into the union. According to the policy, Germany and other EU countries are barred from offering any other support to their agricultural sectors. Being a beneficiary of the CAP, the responsibility of the Germany government is to ensure that funds that offered by CAP are managed effectively.

Germany is one of the strong advocates of the policy. It was among the first signatories of the treaty that officiated this policy. With improvements in the framework on which CAP is administered, Germany and other EU counterparts are deemed to remain competitive in the international market (European Commission 1).

Positive and negative aspects of EU membership on Germany

Belonging to a regional economic body has both positive and negative effects to countries. Germany has derived a lot of economic benefits from its membership in the European Union. Germany is an active exporter of different commodities.

Its presence and membership in the European Union has enhanced its exportation capacity. A lot of cross border trade barriers have been eliminated from the EU giving Germany the opportunity to thrive in the EU market (Schwarzer 2). On the other hand, participation in regional trading blocs results in negative effects for participant countries.

Inasmuch as the country benefits from the reduced trade restrictions, it also faces increased importations from other countries. As a strong economy, Germany has managed to use its economic power to export more, thence, offsetting the deficit that is brought about by imports.

Foreign investment in Germany by countries which do not belong to the EU

Germany has a large economy. The economy of Germany is argued to be decentralized in the sense that internal economic policies are pursued regionally (Organization for Economic Cooperation and Development 16). The country possesses a favorable investment climate for foreign investors.

The country has a stable political environment which has been witnessed since the reunification that took place in the last decade of the 20th century. Germany has a stable government which oversees economic development. It has cultivated a strong economic environment that is supportive of continued investment. As of today, there are a substantive number of foreign firms that control their production in Germany.

The high rate of economic development of Germany is backed by investment in technological development. According to Legler, Licht, and Spielkamp (5), technological development backs industry in the country hence encouraging productivity. Nearly all industries in Germany utilize high technological production methods helping in positioning the country not only in Europe, but also in the entire world.

All these factors denote the presence of an active economic base in Germany. The wider economy and a relatively high population denote the present of a market and labor force for foreign investors (Adekola and Sergi 258). Foreign investors need to assess the role and benefits of Germany in the European Union. This presents an indirect but beneficial aspect. By investing in Germany, non- EU countries can get an opportunity to market their products in Europe without incurring excessive expenses.

Political stability in Germany is a positive factor of influence on economic development. Any foreign investor in the country would find a conflict free zone in which to establish a business. Good governance is also a positive feature in Germany (Lange 3). It Presents a favorable business climate by eliminating business vices like corruption. Investors are required to go through the stipulated procedures. The complexity of the procedures is reduced by the favorable business landscape.

The other supportive factor, which is an advantage to foreign investment, is the presence of numerous foreign companies in the country, some of which come from outside the European Union. Foreign investors can adopt to business entry practices that have been used by benchmark foreign firms operating in Germany.

Viitala (38) observed that the main disadvantage of foreign investment in Germany is the presence of a highly competitive economic environment. The competitive pressure resonates from goods and services from other EU countries that trade with Germany. The EU countries have a competitive edge over other countries or firms from other countries.

The advantage comes from the fact that EU based firms are exempted from numerous trade procedures and costs. The argument here is that irrespective of the presence of internal incentives for investment in Germany, firms originating from outside the EU are often disadvantaged. The disadvantage is seen in cases of access to the EU market.

Works Cited

Adekola, Abel and Bruno S. Sergi. Global Business Management: A Cross-Cultural Perspective. Burlington, VT: Ashgate, 2007. Print.

European Commission. Common Agricultural Policy (CAP). 2012. Web.

Global Finance. Germany Country Report: GDP data and GDP forecasts; economic, financial and trade information; the best banks in Germany; country and population overview. 2012. Web.

Janning, Josef. Europe: Germany’s Dilemma. European Policy Center. 2011. Web.

Lange, Thomas. The Political Economy of German Unification. Providence u.a.: Berghahn Books, 1998. Print.

Legler, Harald, Georg Licht, and Alfred Spielkamp. Germany’s Technological Performance: A Study on Behalf of the German Federal Ministry of Education and Research; with 28 Tables. Heidelberg: Physica-Verl, 2000. Print.

Organization for Economic Cooperation and Development. Oecd Economic Surveys: Germany. Paris: OECD, 2012. Print.

Schettkat, Ronald and Jochem Langkau. Economic Policy Proposals for Germany and Europe. New York: Routledge, 2012. Print.

Schwarzer, Daniela. The Political Economy of Germany in the Sovereign Debt Crisis. Bruegel: Petterson Institute for International Economics. 2011. Web.

Viitala, Tomi. Taxation of Investment Funds in the European Union. Amsterdam: International Bureau of Fiscal Documentation, 2005. Print.

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