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German & EU Economy

Discussion in 'Issues Around the World' started by ethics, Jan 17, 2003.

  1. ethics

    ethics Pomp-Dumpster Staff Member

    The German economy, responsible for one-quarter of all output in the European Union, <a href="http://www.iht.com/articles/83633.html">grew 0.2%</a> last year, its worst performance in a decade, putting Germany last among major European countries in growth. In the final four months of 2002, the economy ground to a halt: retail sales plummeted by 0.5% and the jobless rolls rose above 4 million.

    Ominously, investment in machinery and equipment plunged 8.4% during 2002. A sick Germany threatens to infect its neighbors: although Britain and France are still growing, their economies are becoming more wobbly. Thomas Mayer, chief economist at Deutsche Bank, characterized Germany's problems as "a ticking time bomb for the euro zone."

    Germany can't do anything by way of monetary policy to remedy its situation, because its monetary policy is set by the European Central Bank, which must consider the interests of all twelve states that use the euro. Fiscal policy also offers few options, because last year Germany's deficit was 3.7% of GDP, breaching the ceiling set by the EU and earning Berlin a sharp rebuke from Brussels. But the Economics Ministry is upbeat: "There is no reason for pessimism about the economy."

    The only economic bright spot was exports, but considering that (according to the Federal Statistical Office) exports contributed 1.5 percentage points to growth in 2002, exports are now the only thing keeping the German economy above water. Yet the relentless rise of the euro against the dollar threatens exports at a time when Germany's economy is more dependent on them than ever.

    Some economists claim that misguided macroeconomic policies have made a hash of German reunification, creating problems that should have been easily avoided. But what can be done to remedy the situation now? Will proposed reforms of the labor and welfare systems have any impact? Should additional consideration be given to infrastructure projects in eastern Germany, like the ones underway in China?

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