Research (Conseq)
Markets  |  November 21, 2012 14:44:35

Why is the German economy successful?

Germany was at the end of the nineties to his knees. Huge differences between poor and rich east west, high unemployment, zdražující the real cost of labor and other problems shook the foundations of the German economy. The then Federal Chancellor, Gerhard Schröder, asked the personnel director of Volkswagen, Peter Hartz, to help him prepare the necessary reforms. Thanks to these reforms, Germany became the strongest economy in a time when other countries are unsuccessfully struggling with record unemployment, the German moves at their historic lows since unification.Gerhard Schroeder, however, were these reforms post of Chancellor.

When we look at Germany at the turn of the millennium, we noticed several similarities with the current Spanish and other less successful states: inflexible labor, high unemployment, bloated welfare state.   We can also see strong parallels the west and east by the weaker Italian industrial north and the rural south. The German government has adopted a number of unpopular measures:

The first was to reduce the payment of unemployment benefits, shortening its payment and to simplify the calculation. Unemployed German Hartz IV reform before receiving two-thirds of their salary for up to 32 months. After the reform Germans are obliged to take any reasonable position and not leave such a place, otherwise they would lose their unemployment benefits.

The second was the introduction of so-called part-time minijobs where an employee can earn up to 400 EUR (450 since 2013), without having to pay for health and social insurance. The employer then pays for it much lower payments. Thus they are able to find a job, people who otherwise would not find a job and had to live off of social security contributions.

The third was the restructuring of offices that deal with job search for candidates for advanced work agency.

Another cause of German economic success is the euro. As the euro penalizes net importers such as France, Spain and others, for Germany, where exports make up half of the economy, it's an advantage. If Germany had a separate currency, its exchange rate would have a positive balance of trade due to its height, which, over time, reduce exports.

The last major area that allows Germany to thrive, the qualified labor force. She is given one of the highest shares of expenditure on science in GDP. Germany let you register at the European Patent Office in 2011, more than 33,000 patents, Czech Republic 249th

Although Germany is in economic terms in Europe for the best, it still has the ideal state is far away. Every year they send those Western countries east tens of billions through the so-called Sozialzuschlag. Still, Eastern European countries are significantly less (30%) than those productive West.   German shift from core businesses further raise the price of inputs. Currently on the power MWh of energy that costs around 47 EUR, suffers through government programs on renewable 37 EUR. The problem is the softening of reform, in which payments are unemployment benefits paid to an ever wider meat.   The system of part-time work is definitely something that she could take the example of many countries. Opponents argue that it is earning 400 EUR undignified, but how much more dignified life is on welfare?



Vojtech Iron,

Portfolio Manager

Conseq Investment Management, Inc.







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