Ohio Wesleyan University Goran Skosples 9. Germany

1. Ohio Wesleyan University Goran Skosples 9. Germany

2. The German (Rhine) Model • Germany: Europe’s largest economy • GDP per capita: $38,400 (US = $49,000) • Social market economy • government owns _______________ • principles of consensus, group action, and long-term consequences • coordination and following gov’t guidance • the German constitution (Basic Law) explicitly lays out the economic and social goals • market principles subject to social regulation  __________________

3. The German (Rhine) Model • roots of the welfare state  ________________ • gov’t funded soc. security, health insurance, and worker compensation • Mittelstand • many companies privately owned • no need to appease the _______________ • financing by local banks rather than capital markets • no desire for large leverage (debt)  • modesty  • Oligopolistic markets 

4. The German (Rhine) Model • Mitbestimmung (___________________) • Large firms required by law to have equal representation on their boards for both management and labor • workers have a say in the firms’ operations • work councils + election of workers to company supervisory boards • ensures that workers’ rights and jobs will be protected when decisions are made about where and what to produce • motives: peace between labor and management, reducing output lost to strikes, moderates wage demands to keep inflation in check

5. The German (Rhine) Model • Labor market • high skilled labor • dual-system of vocational training • classroom instruction + work experience • technical colleges vey important • worker loyalty • Agenda 2010 (in 2003) • structural reforms to ↑ growth + ↓ unemployment • wage _________________ • Banking system - three pillars • private, cooperative, public (Savings + Landesbanken)

6. Prior to unification

7. Prior to unification

8. Reunification (1990) • high hopes: • existing institutions in FRG – political, legal, regulatory framework • the best performing socialist economy – highest efficiency and productivity • rapid transformation – Big Bang • currency unification • Treuhandanstalt - privatization • Mezzogiorno problem

9. Consequences for the East •  output (9/89 – 9/90: -51%) +  unemployment (peaked at 21%) • supply (cost): • ___ nominal wage + ___ productivity • outdated capital – requiring ___ investments • excessive ____________ • demand (price): • inflow of western goods (cheaper) • negative ____________________ • dissolution of the Council for Mutual Economic Assistance (CMEA)

10. Evaluation of Unification

11. EU and the Euro • One of the original members of the ECSC (1951) • European Union (1993) • The euro (1999/2002) • single currency + unified monetary policy • ECB in _______________ • Large benefit from the euro (_______________) • low ______ growth • should show solidatity? • Reluctant to help Greece? • German politics  preference for consensus

12. Germany today • unemployment: 6.8% (Jan 2013) • standard of living higher in the west that the east • dislike for inflation • Europe’s locomotive • consumption held low (austerity)  low debt/GDP • strong exports (2nd after China)  CA surplus • services lagging manufacturing (financial, etc) • bubble in the property market? • “coordinated market economy”